October 3, 2018 / 2:28 AM / 13 days ago

Nikkei drops as automakers hit by weak U.S. sales

* Toyota, Honda, Nissan tumble

* Suruga jumps retail investors seen short-covering - traders

By Ayai Tomisawa

TOKYO, Oct 3 (Reuters) - Japanese stocks fell on Wednesday morning as automakers were hit by a sharp drop in U.S. new car sales last month while other stocks, including financials, retreated after a rally over recent weeks.

The Nikkei share average declined 0.5 percent to 24,141.50 in midmorning trade, though it was still holding at 27-year highs.

The weak yen trend paused as the Japanese currency attracted safety bids amid concerns over Italy’s budget plan.

“Japanese shares are sensitive to global investors’ sentiment. Cyclical shares that rose over the past few weeks are prone to profit-taking,” said Yoshinori Shigemi, a global market strategist at JPMorgan Asset Management.

The auto sector was the worst performer on the board, falling 2.0 percent followed by insurers and banks which shed 1 percent and 0.9 percent, respectively.

Major automakers on Tuesday posted a hefty drop in U.S. new vehicle sales for September, in part due to a decline in sales in areas hit by Hurricane Florence and a tough comparison to the year-ago period when consumers rushed to replace vehicles damaged by Hurricane Harvey.

Sales in September 2017 were boosted by major replacement demand for water-damaged vehicles following Hurricane Harvey, which had flooded parts of southeastern Texas in August that year.

Toyota Motor Corp declined 2.2 percent, Honda Motor Co tumbled 3 percent and Nissan Motor Co shed 1.6 percent.

Financial stocks lost ground, with Dai-ichi Life Holdings sliding 2.0 percent and Sumitomo Mitsui Financial Group falling 1.4 percent.

Suruga Bank was volatile after sources told Reuters that Japan’s financial regulator will order the bank to halt some operations in the wake of improper lending on property investments.

The stock jumped as much as 16 percent after slipping into the red in early trade, with traders saying that retail investors were seen covering their short positions after pricing in the bad news.

The broader Topix fell 0.2 percent to 1,819.64. (Editing by Shri Navaratnam)

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