Nikkei hits 4-wk low on Japan's weak GDP data, US fiscal woes

Mon Nov 12, 2012 3:13am GMT

* Nikkei and Topix both down 0.7 pct

* Nikkei heads for 6th straight session of loss

* Suzuki Motor climbs on strong H1, keeps full-year outlook

By Dominic Lau

TOKYO, Nov 12 (Reuters) - The Nikkei average slipped to a four-week low on Monday, heading for a sixth session of decline, hurt by weak Japanese GDP data and concerns over U.S. fiscal woes that threaten to push the world's largest economy into recession.

Exporters, which will be hurt most if the United States slips into recession, took a beating. Toyota Motor Corp , Honda Motor Co, Canon Inc and Nikon Corp were down between 1 and 1.4 percent.

Sony Corp shed 1.7 percent after Moody's Investors Service cut the consumer electronics maker's debt rating to Baa3, just one notch above 'junk' rating, citing shrinking demand for its products.

By the midday break, the Nikkei lost 0.7 percent to 8,693.29, although upbeat data from the United States and China helped limit losses. If the index ends in negative territory, it would be a sixth straight day of decline and the longest losing streak since July.

"It's partly due to the GDP," a trader at a foreign bank said. "It's also partly the feeling that the yen is getting stronger again, partly the concern over the (U.S.) 'fiscal cliff'.

Japan's economy shrank 0.9 percent in the three months to September, marking the first contraction in three quarters, adding to signs that slowing global growth and tensions with China are nudging the world's third-largest economy into recession.

In the United States, the political bickering over $600 billion of spending cuts and tax increases taking effect in the new year, known as the 'fiscal cliff', also threatened to tip the world's largest economy into recession.

The concerns have been weighing on global equities, including Japanese stocks, particularly as they have also been adding upward pressure to the yen.

Adding to the gloom, company earnings have been weak this quarterly reporting season, with 59 percent of 141 Nikkei companies that have reported so far undershooting market expectations, according to Thomson Reuters StarMine. That compared with 54 percent in the previous quarter.

But the market got some support from better-than-expected U.S. consumer sentiment, which rose to its highest level in more than five years in November, and Chinese exports growth which hit their fastest pace in five months.

The broader Topix index fell 0.7 percent to 725.37, also hitting a four-week low. Trading on the Topix was light, w i th volume at 40 percent of its full daily average for the past 90 days.

Hisao Matsuura, equity strategist at Nomura Securities, said if the sentiment worsened, the Nikkei could test a low struck in June of 8,238.96 points, 5.2 percent below where the index ended the moring session.

He said investors were unlikely to enter the market due to the concerns over the United States, where a compromise has to be found with Congress over cutting the fiscal deficit, otherwise $600 billion worth of tax hikes and spending cuts will kick in early next year, putting the economy at risk of recession.

SUZUKI, MAZDA OUTPERFORM

Among the gainers were Suzuki Motor Corp, which surged 4.8 percent after the automaker said nine-month net profit rose 30.9 percent and kept its full-year outlook, saying that a decline in sales in China on anti-Japan sentiment would be offset by gains in Southeast Asia.

Mazda Motor Corp climbed 2.9 percent after it and Toyota said Mazda would produce Toyota vehicles for the North American market at its new plant in Mexico.

The benchmark Nikkei is still up 2.8 percent this year, trailing a 9.7 percent gain in the U.S. S&P 500 and a 10.5 percent rise in the pan-European STOXX Europe 600. Credit Suisse said in a report it was keeping Japanese stocks at 'benchmark' in its global equities model portfolio but noted that Japan's monetary policy remained tight and earnings momentum was poor.

Credit Suisse said it was kept from going underweight by the probability that the Liberal Democratic Party will win power at elections expected next year, very cheap asset valuations and the cyclical nature of many Japanese companies.

Japanese equities carry a 12-month forward price-to-book ratio of 0.83, much cheaper than the S&P 500's 1.9 and STOXX Europe 600's 1.38, data from Thomson Reuters Datastream showed.