Nikkei flat; banks down, trading houses gain

Tokyo, Aug 14: The Nikkei average was nearly flat on Tuesday, as trading houses such as Itochu Corp. rose while bank shares fell, which some attributed to growing doubts about the chances of a Bank of Japan rate rise this month.

Shares of infrastructure-related firms Asiawide such as Kawasaki Heavy Industries Ltd. and Komatsu Ltd. rose after a newspaper report that India is planning a range of such projects.

Meanwhile, Nippon Paper Group Inc. fell 3.7 per cent to 366,000 yen and its peers also dropped after Nikko Citigroup on Monday lowered the target prices for shipper stocks, citing higher material costs.

''The yen has risen especially against the euro, which could mean that European investors are trimming risk assets and that may be weighing on the market sentiment,'' said Yosuke Shimizu, head of the investment information centre at Monex Inc.

The single European currency fell to 160.70 yen from 160.95 yen in late U.S. trade on Monday. It hit a four-month low of 159.98 yen last week. The yen rose across the board as investors further trimmed positions in risky carry trades on persistent jitters about bank and fund losses from problems in the U.S.subprime mortgage sector.

Shimizu said dwindling risk appetite has driven investors to shun shares of banks, property and securities.

''Whereas there are many people who want to buy shippers and trading firms because their earnings are strong,'' he added.

The Nikkei was up 4.28 points, or 0.03 per cent, at 16,804.33 as of 0443 GMT. The broader TOPIX index dipped 0.07 per cent to 1,631.44.

Bank shares rang up losses with Mitsubishi UFJ Financial Group Inc. falling 2.6 per cent to 1.13 million yen and Mizuho Financial Group down 1.3 per cent at 696,000 yen.

Hiroshi Motoki, chief investment officer at AIG Global Investment Corp. (Japan), said the recent decline in bank shares does not seem to be directly related to subprime problems.

''More investors expect the (Bank of Japan) rate rise to take place later than initially expected due to the subprime issues and thus profit improvement for banks from higher rates will likely happen later as well,'' he said.

''It's also a minus for bank shares, which are considered to be sensitive to the health of the economy, when concerns about tightening of global liquidity arise in light of a credit squeeze.'' Shares of trading houses rose with Mitsubishi Corp, which has lost 16 per cent this month, climbing 3.2 per cent to 3,060 yen, while Itochu Corp. jumped 6.6 per cent to 1,320 yen.

Shippers also rose as Mitsui O.S.K. Lines Ltd., which has fallen more than 13 per cent this month, jumped 4.3 per cent to 1,692 yen and Kawasaki Kisen Kaisha Ltd. climbed 4.4 per cent to 1,551 yen.

Shares of Kawasaki Heavy rose 2.8 per cent to 518 yen, and Komatsu climbed 2.9 per cent to 3,550 yen.

REUTERS>