September 4, 2017 / 6:42 AM / 3 months ago

Nikkei falls after North Korea's nuclear test, further selling seen

* Nikkei falls in broad-based selling

* More selling seen in coming days due to Monday’s U.S. holiday

* Small cap shares underperform on profit-taking

By Hideyuki Sano

TOKYO, Sept 4 (Reuters) - Japan’s Nikkei share average stumbled on Monday after North Korea conducted its most powerful nuclear test yet, and some traders expect more selling when the United States reopens after Monday’s holiday.

The Nikkei fell 0.9 percent to 19,508.25, slipping from Friday’s two-week high while the broader Topix declined 1.0 percent to 1,603.55

North Korea conducted its sixth and most powerful nuclear test on Sunday, detonating what it said was an advanced hydrogen bomb for a long-range missile, prompting the threat of a “massive” military response from the United States if it or its allies were threatened.

All but three of the Tokyo Stock Exchange’s 33 industry subindexes were down, with about 90 percent of shares on the main board declining.

“Few investors are trading today. So in that sense, markets are not fully digesting all the factors. I would say we could see more downside moves,” said a trader at a Japanese brokerage.

After North Korea’s previous nuclear test on Sept 9, 2016, Japanese shares ended almost flat, only to suffer a sharp fall the following Monday after big losses on Wall Street. The S&P 500 fell 2.4 percent on that day.

But traders suspect the market will soon rebound once the initial fears stemming from the nuclear test fades.

“Markets do not expect the nuclear test to lead to an immediate military confrontation. People have learned that markets will take North Korea’s actions in their stride,” said Takashi Hiroki, chief strategist at Monex Securities.

“Some investors will see the fall as a good bargain-hunting opportunity,” he added.

While many institutional investors stayed on the sidelines, Japanese retail investors sold small-cap shares, which have been popular in recent months.

Among them mobile game developer Klab fell as much as 10 percent to a 2-1/2-month low and ended down 4.3 percent.

Topix small fell 1.7 percent while Topix 100 dropped 0.8 percent.

The index of Mothers start-up shares dropped 2.9 percent, edging near the three-month low it touched in mid-August.

Bucking the trend, property and casualty insurer Sompo Holdings rose 3.6 percent after the company announced late on Friday that it would sell its British Sompo Canopius unit to streamline its overseas businesses.

Ishikawa Seisakusho, which makes naval mines, soared by up to 17 percent on rising North Korea tensions, before closing 5.7 percent higher.

Toyota Motor shares were down 0.2 percent, outperforming the overall market, after the company reported strong U.S. sales in August.

Reporting by Hideyuki Sano; Editing by Shri Navaratnam and Eric Meijer

Our Standards:The Thomson Reuters Trust Principles.
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