Nikkei turns negative for 2007, exporters down

TOKYO, March 2 (Reuters) The Nikkei average lost 1.35 percent on Friday, erasing its gains for the year, as exporters including Sony Corp. were sold heavily after a global market sell-off and the yen's bounce to an 11-week high against the dollar.

Shares in shipping firms such as Mitsui O.S.K. Lines Ltd. T> , which have benefited from booming Chinese demand for commodities, also slid amid concerns about the Chinese economy after China's main stock index booked its biggest drop in a decade.

But steel shares bounced back after Japan's top two steel makers, Nippon Steel Corp. and JFE Holdings Inc., raised their full-year profit forecasts on Thursday on strong demand for high-end steel.

Nippon Steel shares also drew support from an upgrade by Deutsche Bank.

Kenji Kobata, managing director at the research department of Ace Securities, said the Tokyo market showed signs of stabilising for the moment, drawing support from a recovery in the Shanghai and Hong Kong stock markets.

But the Nikkei is unlikely to rebound much from the current level, as it will take time for investor confidence to return to the market after Wednesday's slump, he said.

''Investors will stay cautious for a while after being badly shaken by the double blows of the Chinese market crash and the warning from Greenspan,'' Kobata said, referring to remarks this week by former Federal Reserve Chairman Alan Greenspan that the U.S.

economy could fall into recession by the year-end.

The Nikkei fell 235.58 points to 17,217.93, its lowest close since Jan. 16, putting the benchmark in negative territory for 2007.

The Nikkei had its worst week in eight months this week, tumbling 5.3 percent on the global market sell-off, its biggest fall since a week in early June when it lost 6.6 percent.

The broad TOPIX was down 1.06 percent at 1,721.59.

EYES ON U.S., CHINA Soichiro Monji, chief strategist at the equity management department of Daiwa SB Investments, said the Nikkei's direction will continue to be dependent on the movements of overseas equity markets as well as currencies.

''I don't see any risk factors peculiar to Japan. If the Tokyo market continues to slide, it should be blamed on external factors or the yen,'' he said.

He said the focus is on whether upcoming U.S. economic data will reinforce worries among investors about the world's largest economy, and whether the annual session of China's parliament, the National People's Congress, due to begin next Monday, will propose fresh measures to cool down its economy or investment.

Exporters such as Sony were major drags on the Nikkei, as a higher yen could curb their future earnings.

Sony lost 5.5 percent to 5,830 yen, while Toyota Motor Corp. fell 1.9 percent to 7,710 yen.

The yen was around 117.65 yen to the dollar after rising to a two-month high of 116.94 on Thursday.

A stronger yen is a negative for Japan's exporters because it eats into profits when earnings from abroad are brought home.

But Nippon Steel shares jumped 3.9 percent to 849 yen, nearing the year's high of 858 yen set on Tuesday, after Deutsche Bank raised its rating on the company to ''Buy'' from ''Hold'', citing strong earnings momentum.

Among losers, Sanyo Electric Co. Ltd. shed 2.7 percent to 184 yen after Chinese computer maker Lenovo Group Ltd. recalled 205,000 Sanyo-made battery packs for ThinkPad laptops because they pose a fire hazard.

Ricoh Co. lost 2.9 percent to 2,555 yen after its chief executive said it will be hard to meet its target of a 10 percent operating profit margin in the year ending in March 2008 amid intense competition and price falls.

Nippon Telegraph and Telephone Corp. fell 3.4 percent to 602,000 yen. The company's fixed-line units expect current profit to halve next business year due to rising costs from signing subscribers to optic-fibre Internet services and shrinking revenues from voice calls.

REUTERS KR SSC1306