Nikkei falls 0.86 percent, Softbank tumbles

TOKYO, Mar 1 (Reuters) The Nikkei average fell 0.86 percent on Thursday, extending losses from the previous session as Toyota Motor Corp. and other exporters lost ground due to concern about U.S. economic growth.

Shares in Softbank Corp. slid more than 7 percent in busy trade after a brokerage issued a report citing what it called ''red flags'' in the Internet conglomerate's accounting. The company, which operates Japan's third-largest mobile phone service, said it would issue ''strong objections'' to both the brokerage, Calyon Capital Markets Asia, and the author of the report.

As the market has been pricing in a global economic recovery, weak U.S. data such as revised gross domestic product and housing figures have kept investors on edge, said Andrew Millward, a fund manager at Henderson Global Investors Japan K.K.

''The markets have been pricing in a Goldilocks scenario for the last couple of months,'' he said. ''Apart from the falls in the Chinese market, which affect sentiment and particularly the risk appetite, I think there are one or two economic worries as well in the background.'' The Nikkei dropped 150.61 points to 17,453.51, the lowest close since Feb. 8. The benchmark fell 2.85 percent on Wednesday, logging its biggest one-day fall in eight months.

The TOPIX slid 0.72 percent to 1,740.11.

Trade was active with 3.18 billion shares changing hands on the Tokyo exchange's first section. Declining shares outnumbered advancers by a ratio of about two to one.

Norihiro Fujito, a general manager in the investment research and information division at Mitsubishi UFJ Securities Co. Ltd, said the market may be volatile for a while as hedge funds and other funds realign positions after the global stock sell-off.

''Funds deeply involved in emerging equity markets are probably hurting. Even financial markets in developed countries are falling, and any equity-leveraged funds are probably taking a hit,'' he said. ''These funds need to cash in their holdings as they will likely have cancellations from clients.'' Analysts say foreign investor buying trends may be in focus.

These investors were net buyers of Japanese stocks for the seventh straight week last week, according to Tokyo Stock Exchange data.

Non-residents bought a net 528.74 billion yen worth of Japanese shares on the Tokyo, Osaka and Nagoya exchanges in the week ended Feb. 23, the data showed.

SOFTBANK HIT Softbank ended down 7.4 percent at 2,775 yen after it rejected the brokerage report about its accounting.

Fujito said foreign investors may pay close attention to Softbank. Accounting problems have dogged Japanese firms, such as Nikko Cordial Corp., which the Nikkei business daily has said is likely to be delisted over an accounting scandal. Nikko shares ended down 6.0 percent at 1,216 yen.

''Foreign investors may react sensitively,'' Fujito said.

On the other hand, Sanyo Electric Co. Ltd. jumped 6.2 percent to 189 yen after Kyodo news agency said Japan's securities watchdog had decided not to file a criminal complaint against the company over accounting irregularities or recommend that it be fined.

Toyota Motor fell 2 percent to 7,860 yen as the yen remained firm against the dollar. The yen was around 118.30 yen after hitting 117.50 yen on Tuesday, its strongest since Dec. 15.

Millward of Henderson Global Investors Japan said with the yen's appreciation, investors' appetite for exporters may be falling and domestic shares may be in focus.

''I don't find many undervalued stocks in pharmaceuticals, utilities or food sectors,'' he said. ''But there are plenty of other domestic sectors, or predominantly domestic sectors, which I think look good value, particularly banks.'' In the steel sector, Nippon Steel Corp. ended up 1.5 percent at 817 yen after it said it would post a record profit for the third straight year, raising its full-year forecast for the third time in six months.

JFE Holdings Inc., the world's No. 4 steel maker, also lifted its recurring profit forecast by 2 percent, although the stock ended down 0.8 percent at 7,230 yen.

REUTERS CS DS1516