Nikkei slides

Japan's Nikkei average fell 3.1 percent on Monday in its biggest one-day fall in nearly five months, on profit-taking sparked by worries the surge in stocks had run ahead of economic recovery. An unexpectedly weak reading on US consumer confidence and falls in US share prices late last week, as well as declines in oil prices and Chinese equities, raised worries that risky assets were due for a pull-back.
Resource-linked shares such as Inpex Corp retreated due to the slide in oil prices, while exporters such as Kyocera Corp fell as the dollar dipped against the yen and pulled away from an eight-week high hit earlier this month. "The Nikkei has gained a lift from rises in overseas equities and an expansion in investors' risk tolerance. But there is a sense that this is approaching a limit," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"That's why profit-taking is predominant," he added. Data showing that Japan's economy grew 0.9 percent in April-June from the previous quarter, broadly in line with a median market forecast for 1.0 percent growth, also led to some profit-taking as it disappointed those investors who had been bracing for stronger numbers, market players said.
The Nikkei slid 328.72 points to 10,268.61, its lowest closing level in about two weeks, and down from a 10-month closing high of 10,597.33 on Friday. The Nikkei's 3.1 percent slide was its biggest one-day percentage fall since late March. The broader Topix index fell 2.5 percent to 949.59.
The fall in Tokyo shares occurred in relatively thin volume, with 1.97 billion shares changing hands on the Tokyo exchange's first section, just slightly above last week's daily average of 1.94 billion, which was the lowest daily average since 1.78 billion shares in the week of February 16-19.
Bucking the overall trend were flu-related shares. Shares of drugmakers and companies that produce medical masks and the fabrics used to make them jumped after news of Japan's first death from the H1N1 flu. Daiichi Sankyo climbed 2.9 percent to 1,998 yen. It and Australian biotech firm Biota said last week a new flu drug, which was billed as possibly effective against both H1N1 swine flu and H5N1 bird flu, has succeeded in late-stage trials in Asia.
Declining stocks outnumbered advancing ones by nearly 6 to 1. Investors and analysts said the Nikkei was unlikely to fall too sharply in the near term, as economic fundamentals were likely to remain solid at least until the July-September quarter. "We are not in a phase where we are likely to see disappointing numbers. Instead, there will probably be some figures that point to a recovery," said Kiyoshi Noda, chief fund manager for MU Investments.
"But since the market has risen quite a bit, we may see some volatility, both toward the upside and the downside even while trading within a range," Noda said. Bearish technical signals could add to the selling momentum, judging from a form of technical analysis known as Moving Average Convergence/Divergence (MACD). The MACD line is now nearly overlapping with the signal line on daily charts and close to breaking below it, in what would be a bearish signal.
The market is vulnerable to quick shifts in sentiment, with trade led by short-term players, said Ichiyoshi's Akino. "Right now there are only short-term players, because it is hard to tell how corporate earnings and economic sentiment in the second half of the fiscal year and beyond will turn out," Akino said, referring to the period from October and beyond.
A natural correction for the Nikkei would be a drop towards 10,000, but the benchmark index could fall towards 9,500 if falls in Chinese shares and oil prices gain steam, Akino said. Oil and gas developer Inpex slid 4.8 percent to 708,000 yen, as oil prices fell below $67 a barrel on Monday, extending the previous session's 4.3 percent decline. Kyocera Corp fell 4.1 percent to 7,500 yen. Chinese shares extended their fall after the Nikkei's close and slid 5.8 percent.