TOKYO, Nov 12 (Reuters) Tokyo stocks dropped more than 2 percent on Monday, with the Nikkei share average and the TOPIX index ending at their lowest in more than 15 months, as a sharp rise in the yen and tumble on Wall Street triggered a sell-off across the board.
Only a handful stocks, such as Dai Nippon Printing, gained but the yen sprinted to an 18-month high against the dollar, putting pressure on shares of exporters.
''Besides the credit problems stemming from the subprime mortgage crisis, the outlook for the Japanese economy is becoming opaque,'' said Jyusaku Mauo, general manager at Mito Securities Co's investment information department.
Mauo also pointed to Japan's gross domestic product data, which is due to be released on Tuesday. ''Tomorrow, Japan's GDP could show some solid numbers but domestic demand remains sluggish.'' A Reuters poll showed on Friday that Japan's economy likely avoided falling into a recession in the July-September quarter, after a slight contraction in the previous quarter, thanks to firm exports and capital spending.
The Nikkei declined 2.48 percent to 15,197.09, the lowest close since July 27, 2006. So far this year, the Nikkei benchmark has lost around 12 percent. The broader TOPIX shed 2.54 percent to 1,456.40, the lowest since June 2006.
Foreign investors remain bearish on Japanese stocks. Goldman Sachs' Japan Chief Economist Tetsufumi Yamakawa said in a note on Monday that U.S. investors had reduced their Japanese equity holdings to a 10 percent to 15 percent weighting, compared to a Japanese equity benchmark of over 20 percent in the MSCI EAFE index.
''The reasons for this negative outlook on Japanese equities are too numerous to mention, but include economic trends, Japanese companies' stance on creating shareholder value, a weakening commitment in the government to structural reform,'' he said.
But some optimists, such as Yoshihisa Okamoto, senior vice president at Fuji Investment Management, believe the market to be near the bottom.
''You need to be vigilant, of course, but rather than liquidating your holdings and park your money in cash, investors are likely to look for buying opportunities,'' he said. ''I don't expect the market to fall much further.'' Okamoto also said that some companies have been sold despite their strong earnings and these stocks may likely rebound if the market sentiment shifts.
DOWN DOWN DOWN Honda gave up 3.6 percent to 3,760 yen. Japan's second-biggest automaker has forecast the dollar to average 113 yen in the second half and it said each one-yen gain against the dollar trims its operating profit by 20 billion yen (1 million).
Industry leader Toyota Motor Corp, which assumed a dollar/yen rate of 110 yen for the second half of their fiscal year to March, lost 2.8 percent to 5,980 yen.
Bad news for auto stocks also came out after the market closed. Japanese truck maker Isuzu Motors Ltd posted a 16 percent fall in first-half operating profit on Monday as a sharp drop in truck sales in Japan, North America and Thailand overshadowed a rise in oil-rich markets.
In the banking sector, Mizuho Financial Group Inc dropped 2.5 percent at 518,000 yen, extending its losing streak into a fourth session. The bank lost 5.7 percent on Friday after the Nikkei business daily reported its unlisted brokerage arm may post a subprime-related loss of more than 100 billion yen.
Japanese banks' performance was in stark contrast to their U.S. peers such as Citigroup, which gained even after a fresh bout of credit loss revelations from some big banks, including Wachovia and Morgan Stanley.
Nonferrous-related stocks lost ground with Sumitomo Metal Mining down 1.9 percent at 2,360 yen and Mitsubishi Materials declining 4.7 percent to 583 yen. Copper tumbled more than 3 percent on Friday, hitting its lowest level in three weeks on poor U.S. economic data suggesting a slowdown in the world's largest economy and softening Chinese demand.
A few bright spots included Nippon Telegraph and Telephone Corp (NTT), Japan's largest telecoms company. It rose 1.2 percent to 500,000 yen after it said on Friday it would buy back up to 100 billion yen worth of its own shares.
Dai Nippon Printing rose 5.3 percent to 1,670 yen after Goldman Sachs raised its rating to ''Neutral'' from ''Sell''.
REUTERS BJR HS1817