TOKYO Japan's Nikkei share average fell as much as 1.3 percent to hit a two-week low on Wednesday on fresh concerns over a slowing global economy after Brazil reported weak growth and on fears that Greece may not meet its deadline for debt restructuring.
Some investors shifted to domestic-focused companies from exporters, however, with bridge builders extending their sharp gains in the previous session after the Tokyo Metropolitan Expressway Co Ltd convened its first panel meeting on Monday to consider upgrading highways in the capital.
Japan Bridge Corp and P.S. Mitsubishi Construction surged 7.5 and 7.7 percent, respectively
"There are still bids out there in the market. We are buying more domestic names," a trader at a foreign bank said.
By the midday break, the Nikkei was down 0.7 percent at 9,566.07 after falling as low as 9,509.10 to hit a two-week trough. The benchmark is on track for its third straight session of loss.
"This is the market correction that we've been waiting for. Investors are picking up small cap stocks like bridge builders but apart from that it's a difficult environment for domestic investors to reach their hands out to buy," said Masayuki Otani, chief analyst at Securities Japan.
"For now, I see support at Nikkei's 25-day moving average near 9,300. Domestic investors who failed to get on the rally are not going to jump in now and foreign investors' risk appetite also seems to have waned if you look at VIX."
The VIX, Wall Street's fear gauge, climbed 16 percent on Tuesday to post its biggest one-day percentage rise in four months.
NOMURA, MUFG AMONG DECLINERS
Financials, shippers and machinery stocks came under pressure after they rallied in the past two months, buoyed by a run of strong U.S. economic data and accommodative monetary policies by global central banks that have pushed investors back into risk assets.
Japan's securities subindex was one of the worst sectoral performers, down 1.9 percent, with Nomura Holdings, Japan's top investment bank, dropping 1.9 percent and Daiwa Securities Group Inc losing 2.4 percent.
Megabanks Mitsubishi UFJ Financial Group (8306.T) and Sumitomo Mitsui Financial Group (8316.T) both eased 1.2 percent.
"What we are seeing is a roll over in terms of the beta rally. It is now about stock selection as opposed to just buy on the beta," another trader said.
"We still think that the US is recovering and to that, cyclical stocks here do provide good value. Although in the near term, there will be a pullback, fundamentally the market outlook is starting to improve."
The broader Topix lost 0.8 percent to 820.61. Trading volume on the main board after the morning session was 69 percent of its full daily average for the past 90 days.
AVERSION TO RISK
Brazil's economy grew just 2.7 percent in 2011 compared with 7.5 percent in 2010 and the Australian economy grew a disappointingly sluggish 0.4 percent last quarter, adding to worries after China cut its growth outlook earlier in the week.
Concerns that Greece may be unable to secure private creditors' support for its debt restructuring, which is a key part of a bailout programme, also hurt sentiment. Greek private creditors have until Thursday to say if they will participate in the exchange.
The Dow Jones industrial average fell more than 200 points on Tuesday, handing Wall Street its worst day in almost three months.
Reflecting investors' risk aversion, the Nikkei volatility index climbed 3.9 percent on Wednesday. The higher the volatility index, the lower the risk appetite.
Still, the Nikkei is up more than 13 percent this year.
Concerns about global growth and a rebounding yen against the dollar also weighed on sentiment on Wednesday.
Shipper Mitsui O.S.K. Lines (9104.T) shed 2.3 percent, while industrial robot maker Fanuc Ltd (6954.T), automaker Toyota Motor Corp (7203.T) and construction machinery maker Komatsu Ltd (6301.T) all lost 1.2 percent.
(Editing by Jacqueline Wong and Muralikumar Anantharaman)