Nikkei falls 2.9 pc on US economy, yen worries

Tokyo, Mar 14: The Nikkei average lost 2.92 percent onWednesday, booking its second-biggest daily percentage fall this year,as Honda Motor Co. Ltd. and other exporters slid on concerns about ahigher yen and turmoil in the US subprime mortgage market.

Investors also locked in profits on recent gainers includingSumitomo Realty&Development Co. Ltd. and other property shares,as the Nikkei halted its recovery from a sell-off in global stocks twoweeks ago.

Bucking the trend, Mitsubishi Heavy Industries Ltd. rose 1.9percent to 656 yen after the company said it had received an order fromU.S. power plant operator TXU Corp. to build two nuclear reactors.

Shares in Nikko Cordial Corp. jumped by their daily price limit of200 yen or 13.4 percent to 1,690 yen, after Citigroup raised itstakeover bid for Japan's third-biggest brokerage by 26 percent to morethan billion.

Yutaka Shiraki, senior equity strategist at Mitsubishi UFJSecurities, said the Nikkei may break the year's low of 16,532.91 seton March 5 if U.S. stocks keep sliding and worsen sentiment of foreigninvestors -- main buyers of Tokyo stocks.

''Faced with bearish U.S. economic data and subprime troubles,investors are reviewing an optimistic outlook for stock prices,'' hesaid. ''Further correction of the market looks likely.'' The Nikkeished 501.95 points to 16,676.89, its lowest close since March 5. Theloss was the second largest for this year, after the index fell 3.34percent on March 5.

The broad TOPIX index fell 2.93 percent to 1,674.94.

Markets were unnerved after two major U.S. subprime lenders,Accredited Home Lenders Holding Co. and New Century Financial Corp,said they were running out of cash on Tuesday. Rising mortgage defaultsprompted General Motors Corp. to inject billion into its formerfinance arm, GMAC.

But Yoshinori Nagano, chief strategist at Daiwa Asset Management,said that chances are low for U.S. subprime mortgage problems to hurtthe broader economy.

''It is basically the problem of subprime lenders and financialinstitutions that lend to these firms,'' he said. ''I don't expect theissue will have far-reaching effects on the economy as a whole.''EXPORTERS FALL Shares in exporters fell, with Honda dropping 3.5percent to 4,110 yen and Canon Inc. falling 2.7 percent to 6,140 yen. Astronger yen weighs on exporters as it cuts the value of their overseassales when converted into the Japanese currency.

The dollar fell as low as 115.88 yen early in the Tokyo session,extending losses after falling more than 1 percent on Tuesday andedging towards a three-month low of 115.16 yen touched earlier in March.

Rakuten Securities chief strategist Hiroyuki Fukunaga said thesell-off in U.S. stocks prompted investors to unwind carry trades,which led to a stronger yen and a fall in the stock market.

''There's a possibility the situation in the U.S. market couldbecome more serious as there is still room for a decline,'' he said.

In the carry trade, investors borrow a low-yielding currency such as the yen to finance purchases of higher-yielding assets.

Among other losers, Seiko Epson Corp. shed 5.4 percent to close at3,180 yen after a newspaper reported the printer and display maker waslikely to post a loss for the current business year to March 31 insteadof a profit.

After the close of trading, Seiko Epson said it would post a groupnet loss of 18 billion yen in the 2006/07, cutting its earlierprojection of a 14 billion yen profit.

Konica Minolta Holdings Inc. ended down 1.4 percent at 1,497 yen,recovering slightly from an earlier fall to 1,472 yen after a companyexecutive told Reuters the company was set to reach its profit goal forits office equipment unit for the business year ending this month.

Reuters>