Nikkei falls as Softbank and Yahoo drop

TOKYO, Sep 6 (Reuters) The Nikkei average fell 0.64 percent on Wednesday as Softbank Corp. and Yahoo Japan Corp. fell on brokerages' bearish reports while recent gainers such as baby goods makers came under pressure.

Shares in Nippon Flour Mills Co. Ltd. and movie producer Toei Co. Ltd. lost ground after news they will be removed from the benchmark Nikkei next month.

''Softbank is always the most actively traded issue and I don't exaggerate when I say Softbank represents retail investors' basic stance on their investments,'' said Kenichi Hirano, operating officer at Tachibana Securities.

''So when the stock falls, that dampens market sentiment.'' The Nikkei dropped 104.97 points to 16,280.99 as of 0437 GMT.

It hit a three-month closing high for the second straight session on Tuesday. The broader TOPIX index was down 0.41 percent at 1,644.56.

Some speculative selling was also seen in the futures market ahead of Friday when Nikkei September option and futures contracts are expected to be settled, said Tsutomu Yamada, market analyst at Kabu.com Securities Co.

''It looks like someone is keeping the market from going higher,'' he said.

Internet and communications conglomerate Softbank lost 4.6 percent to 2,205 yen, becoming the bigest drag for the Nikkei, after Credit Suisse cut its rating on the stock to ''underperform'' from ''neutral'' and slashed its target price to 1,340 yen from 2,620 yen.

The falls came after Softbank soared 5.7 percent in the previous session, taking its gains to more than 15 percent since it set a one-month low of 1,995 yen on Aug. 28, hit by a bearish report by Lehman Brothers which lowered its target price to 900 yen.

''No one really knows what the fair value for Softbank is and that's why the stock swings up and down so much,'' said Yamada of Kabu.com Securities.

Credit Suisse also started the coverage of Web portal Yahoo Japan with a rating of ''underperform'' and set a target price of 39,000 yen. Yahoo Japan lost 4 percent to 45,100 yen.

Outgoing and incoming shares in the Nikkei annual reshuffle next month went separate ways.

Nippon Flour Mills fell 3.3 percent to 532 yen and movie producer Toei lost 1.6 percent to 898 yen. Movie producer Toho Co. Ltd., to be added to the Nikkei on Oct. 2., rose 0.6 percent to 2,510 yen but another new addition Tokyu Land Corp. slipped 0.7 percent to 1,084 yen.

Retailer Yamada Denki Co. Ltd. lost 4.3 percent to 12,360 yen and financial services firm SBI Holdings Inc. dropped 3.4 percent to 45,400 yen as investors were disappointed these stocks were not included in the Nikkei new additions.

The biggest beneficiary of the rejig news was general contractor Kumagai Gumi Co. Ltd. which surged 13.5 percent to 302 yen, as the stock keeps its place in the Nikkei despite earlier expectations it would be deleted due to a lack of liquidity.

Some aerospace-related stocks gained after a media report on the building of Japan's first passenger jet.

Mitsubishi Heavy Industries Ltd., which is involved in the project, rose 0.8 percent to 522 yen and Sumitomo Titanium Corp.

, which makes titanium products used in aerospace, rose 4.2 percent to 27,130 yen.

Meanwhile, shares of baby stroller maker Combi Corp. plunged 10.1 percent to 885 yen as investors grabbed profits after Japan's Princess Kiko gave birth to a boy on Wednesday.

Shares of baby goods makers had surged in recent days on hopes the royal birth would boost the country's sagging birth rate.

Reuters KR VP1050