Nikkei loses 0.7 pct, bank shares fall but TDK up

By Staff
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TOKYO, Mar 16 (Reuters) The Nikkei average lost 0.69 percent on Friday, erasing most of the gains made in the previous session, as concerns about the U.S. economy prompted investors to book profits in recent gainers such as Sumitomo Realty&Development Co. Ltd.

Bank shares took a hit, with share prices in Japan's top three financial groups -- Mitsubishi UFJ Financial Group Inc. T> , Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. -- falling to their lowest for the year amid caution about their earnings.

But TDK Corp. jumped almost 5 percent after the electronics parts maker said it would take over the hard disk drive business of Alps Electric Co.

Soichiro Monji, chief strategist at Daiwa SB Investments, said the downward correction of the market could last until around the middle of this year, as more data indicating a slowdown in the U.S. economy is expected to come.

''Concerns about the U.S. economy may deepen in coming months,'' he said, adding that investor sentiment could be hurt by U.S. corporate earnings reports for the January-March quarter that he said would likely show less than 5 percent growth compared with rises of more than 10 percent in preceding quarters.

The Nikkei closed down 116.24 points at 16,744.15. The broad TOPIX index fell 1.01 percent to 1,677.06.

On the week the Nikkei lost 2.4 percent amid concerns that problems in the U.S. subprime mortgage sector will have a broader economic impact. The sector serves borrowers with poor credit histories and charges higher interest rates.

Kenji Kobata, managing director in the research department of Ace Securities, said a sell-off in U.S. bank shares due to subprime mortgage troubles also prompted foreign investors to sell Japanese bank stocks.

The banking sector IBNKS.was the second-largest percentage loser among the TOPIX's 33 industry sub-indexes, just behind real estate IRLTY.

BANKS FALL Kobata said concerns about earnings were another reason for investors to sell shares in Japanese banks.

Japanese banks have had difficulty raising lending rates to corporations, despite the Bank of Japan's interest rate hike last month, as demand for loans from companies remains low.

''Investors are dumping bank shares as lending margins of Japanese banks have not improved as much as they had earlier expected,'' he said.

Shares of Mizuho Financial were also pressured by news that French investment bank Calyon on Thursday sued Mizuho, claiming the Japanese bank illegally poached staff from a U.S.-based Calyon debt trading unit.

Bucking the trend, TDK gained 4.9 percent to 9,950 yen after the electronics parts maker said on Thursday it would take over Alps Electric Co.'s hard disk drive head business, boosting its share of the fast-growing market.

Alps Electric shares climbed 5.3 percent to 1,362 yen.

''Investors expect TDK to boost its profit margins through this merger as TDK, which is already a leading company, can beef up its expertise,'' said Haruo Otsuka, chief fund manager at Toyota Asset Management.

Nikko Cordial Corp. added 0.1 percent to 1,687 yen after sources said Mizuho Financial Group, Japan's No.2 bank, would tender its 4.8 percent stake in Nikko Cordial to Citigroup After the close of trading, Hitachi Ltd. said its hard disk drive unit is likely to report a bigger operating loss in the first three months of 2007 than the 5.4 billion yen loss it posted for the same period a year earlier.

Honda Motor Co. said it will recall 528,406 locally made cars in China next week due to potential problems with oil pipes and pumps, its venture in southern China said.

Trade remained active, with 2.4 billion shares changing hands on the Tokyo exchange's first section. Declining shares beat advancers by a ratio of more than four to one.

REUTERS CS HS1500

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