May 13, 2019 / 2:46 AM / 5 months ago

Nikkei falls as escalation in U.S.-China trade war dents sentiment

* Nikkei falls as much as 1% at one point

* Topix nears a February low

* DeNA soars after big share buyback announcement

By Ayai Tomisawa

TOKYO, May 13 (Reuters) - Japan’s Nikkei fell on Monday morning as most cyclical sectors lost ground after a trade war between the United States and China escalated, while a drop in U.S. futures dented sentiment.

The Nikkei share average fell 0.5% to 21,237.71 at the midday break, while the broader Topix shed 0.1% to 1,547.56.

Mini S&P futures fell 1% during Asian trade, while the dollar dropped 0.3% at 109.650 yen, triggering a sell-off in Nikkei futures at one point.

The United States and China appeared at a deadlock over trade negotiations on Sunday as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any “bitter fruit” that harmed its interests.

The trade war between the world’s top two economies escalated on Friday, with the United States hiking tariffs on $200 billion worth of Chinese goods after President Donald Trump said Beijing “broke the deal” by reneging on earlier commitments made during months of negotiations.

Analysts said that the market’s initial reaction to the news was negative, forcing the Nikkei to shed as much as 1% earlier and the Topix to fall to near a February low, but selling has eased as investors digested the news and decided that it’s too early to assess the impact from the latest developments of the trade talks at this stage.

If the Topix falls below its February low of 1,536.65, it will be the lowest since Jan. 16.

Meanwhile, White House economic adviser Larry Kudlow said on Sunday that Trump and his Chinese counterpart Xi Jinping are likely to meet during a G20 summit in Japan at the end of June and discuss trade.

“Trade talks will continue, as there’s a summit in Osaka, so it’s too early to price in the real impact to the economy in the market yet,” said Shoji Hirakawa, a chief strategist at Tokai Tokyo Research Center. “The market reaction is different from last year when Trump raised tariffs for Chinese goods for the first time. We’ll have to wait longer.”

Cyclical shares such as shippers and machinery stocks were sold. Mitsui OSK Lines dropped 1.4%, Yaskawa Electric declined 2.1% and Komatsu Ltd dropped 1.5%.

DeNA Co jumped 20% after the mobile game provider said to buy back up to 26.14% of its own shares worth 50 billion yen.

The company also said it will launch a Pokemon mobile game this fiscal year. (Editing by Simon Cameron-Moore)

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