Nikkei closes at 4-wk low on US fiscal woes, weak GDP

Mon Nov 12, 2012 7:05am GMT

* Nikkei drops for 6th day

* Nikkei may fall to 8,534 - analyst

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

By Ayai Tomisawa and Dominic Lau

TOKYO, Nov 12 (Reuters) - Japan's Nikkei stock average fell for a sixth straight day and closed at a four-week low on Monday, hurt by a strong yen and worries about a possible U.S. fiscal crisis that may push the world's largest economy into recession

Data showing Japan's economy had shrunk 0.9 percent in the three months to September - its first contraction in three quarters - further dulled investors' appetite for risk, as it highlighted how slowing global growth and tensions with China are nudging the world's third-largest economy into recession.

The Nikkei fell 0.9 percent to 8,676.44, and the broader Topix dropped 1.1 percent to 722.58.

Investors are concerned about the ability of the administration of U.S. President Barack Obama to strike a compromise with Congress over cutting the fiscal deficit, otherwise $600 billion worth of tax hikes and spending cuts will kick in early next year.

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 1.2 and 1.8 percent.

Sony Corp shed 2.6 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.

"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'.

A stronger yen will also hurt exporters, and traders said the Bank of Japan had so far failed to convince the market its stimulus measure were having an effect on the currency.

"Investors are thinking that the yen may not weaken even if the central bank eases monetary," said Hiroyuki Fukunaga, chief executive of Investrust, adding that in the next few weeks the Nikkei may test a support level of 8,534, a closing price of Oct. 12.

Bank of Japan Governor Masaaki Shirakawa said the central bank will continue to pursue powerful monetary easing, taking into account the risk that rises in the yen can hurt Japan's economy.

But he stressed that flooding markets with cash alone won't nudge up prices in countries like Japan where interest rates are already near zero, repeating his call for government efforts to boost growth potential such as deregulation and structural reform.

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.

SUZUKI, MAZDA OUTPERFORM

Among the gainers were Suzuki Motor Corp, which surged 4.5 percent after the automaker's nine-month net profit rose 30.9 percent. Suzuki also maintained 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 1.0 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 2.6 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.

Volume was low, with 1.26 billion shares changing hands on the Tokyo stock exchange's first section, lower than last week's average daily volume of 1.59 billion shares.