July 25, 2012 / 1:57 AM / 5 years ago

Nikkei drops after weak euro zone hurts U.S. earnings

 * Toshiba down 8 pct: weak Apple earnings, production cut
 * Nikon, Canon drop on euro zone concerns
 * Fears that U.S. stimulus could hurt Japanese stocks
 By Sophie Knight
 TOKYO, July 25 (Reuters) - Japan's Nikkei share average slid
closer to its year-to-date low early on Wednesday after
disappointing U.S. earnings reflected weakening demand in
Europe, while hints of more stimulus from the U.S. Fed failed to
soothe fears of a global slowdown.
 Toshiba Corp slumped 8 percent to a
more-than-three-year low after sales of Apple's iPhones
came in well below market expectations, a day after Toshiba said
it planned to cut memory chip production by 30 percent due to
oversupply. 
 The Nikkei lost 1.4 percent to 8,369.01 in early trade,
striking a seven-week low and nudging closer to its June 4 low
of 8,295.63. The broader Topix lost 1.3 percent to
708.29.
 Fears of a bailout for Spain hurt global markets, but U.S.
equities were given a last-minute leg-up after the Wall Street
Journal said Federal Reserve officials were moving closer to
steps to spur activity and hiring. 
 The news was cold comfort for investors in the Japanese
market, however.
 "The problem is that if they were to introduce QE3 (a third
round of quantitative easing) that would weaken the dollar,
thereby strengthening the yen, which is a bad thing for Japanese
stocks," said Makoto Kikuchi, CEO of Myojo Asset Management.
 An irrepressibly robust yen has injured the share prices of
Japanese exporters, who risk seeing their revenues pruned as the
euro hovers at an 11-year low against the Japanese currency
after Spanish and Italian bond yields soared to unsustainable
levels early this week. 
 Canon Inc, a camera maker with high exposure to
Europe due to report earnings later on Wednesday, lost 1.8
percent to hit a fresh 3-year low. Rival Nikon Corp 
shed 4.7 percent to strike a 7-week low as the euro wallowed at
94.22 yen.  
 Euro zone concerns will be exacerbated by rating agency
Moody's decision to change its outlook for Germany, the
Netherlands and Luxembourg to negative from stable as the
fallout from Europe's weaker southern nations cast a shadow on
the region's most robust economies. 
 "It's a message that if you share a monetary union with
broken economies like Spain's and Italy's then you will be
dragged down too," Kikuchi said. "The uncertainty about when and
how Germany will confront the decision of whether to leave the
euro is breeding a risk-off atmosphere right now." 
 Japan's own earning season kicks off in earnest later on
Wednesday, with Canon, Hitachi Construction Machinery,
KDDI and Nintendo among those reporting after
the bell.
 Apple suppliers were under pressure, with Murata
Manufacturing Co Ltd, Foster Electric Co Ltd,
Ibiden Co Ltd, Seiko Epson Corp, Taiyo Yuden
Co Ltd were down between 2.9 and 7.3
percent. 
 "I think that although individual stocks will be affected by
earnings it's unlikely to lend any support to the wider market.
Things have become quite tough," said Kenichi Hirano, operating
officer of Tachibana Securities. 
 An increasing number of market analysts see the Nikkei
slipping until it hits support around 8,100. It is down 4
percent on the week so far, after fears of a Spanish bailout
were sparked by heavily indebted region Valencia asking Madrid
for aid last Friday. 
 

 (Editing by Richard Pullin)
 

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