April 5, 2012 / 3:02 AM / 5 years ago

Nikkei hits 4-week low on renewed euro zone worries

* Nikkei sheds further 0.9 pct after worst day in 5 mths
    * Automakers, financials suffer
    * Correction seen short-lived -strategists

    By Dominic Lau	
    TOKYO, April 5 (Reuters) - Japan's Nikkei average extended
heavy losses made the previous day to fall to a four-week low on
Thursday, hurt by a weak Spanish debt auction and fading hopes
for further U.S. monetary stimulus.	
    Automakers and financials were under pressure, with Toyota
Motor Corp down 2.4 percent, Honda Motor Co 
shedding 3.1 percent, Japan's top investment bank Nomura
Holdings losing 1.7 percent and insurer Dai-ichi Life
Insurance Co Ltd off 3.3 percent.	
    By the midday break, the Nikkei had dropped 0.9
percent to 9,727.99, on track for its third-straight losing day
after sliding 2.3 percent on Wednesday, its worst day in five
months.	
    But it is still up 15 percent this year, buoyed by a run of
strong U.S. economic data and liquidity boosting programmes by
central banks, and strategists said they expect the current
correction to be short-lived.	
    "The market does not feel so overbought anymore. It is not
expensive. It's just that people who don't have a whole load of
experience of markets that go up because they have been in Japan
start to feel vertigo when they get on the bottom of the step
ladder," said Nicholas Smith, Japan strategist at CLSA.	
    The Topix carried a 12-month forward price-to-book
ratio of 1.03, a level not seen since mid-March last year and
compared with a 10-year average of 1.33, data from Thomson
Reuters Datastream showed.	
    By contrast, the U.S. S&P 500 had a 12-month forward
P/B of 2, more expensive than the Topix, which was down 1
percent at 827.13 on Thursday.  	
    Naomi Fink, Japan equity strategist at Jefferies, said a
bear market relapse was not in the offing.	
    "We remain positive mid-term, and don't anticipate a
full-scale flare-up of the Greek crisis, another natural
disaster in Japan or a hard landing in China," she said in a
note.	
    "Timing-wise, we may be left hanging until the Bank of Japan
speaks (dovishly) again."	
    The BOJ will hold a two-day policy meeting next week.	
    	
         	
    BOJ EYED	
    Fink recommended investors avoid shorting stocks that retail
investors like to buy on dips, such as pharmaceuticals,
retailers, information and communications companies, and food
and beverage firms.    	
    A trader said the BOJ was expected to stand pat next week
but was likely to expand its asset purchasing programme by 5
trillion yen ($60.64 billion) and extend the maturity of its
Japanese government bond buying at its April 27 meeting.	
    Ahead of the policy meeting, he said investors can buy
short-dated Nikkei call spreads expiring in April or May as a
cheap way to capture any upside. 	
    Trading volume on the main board after the morning session
was slightly above half of its full daily average for the past
90 days.	
    Kansai Electric Power Co Inc outperformed the
broader market, up 3.1 percent after a report that Japan's trade
minister is set to seek local approval for the restart of the
utility's Ohi nuclear plant as early as Sunday.    	
    On Wednesday, Spanish borrowing costs jumped at a bond
auction, raising fears that the euro zone debt crisis may flare
up again and suggesting that the effects of a liquidity
injection that has bolstered risk assets so far this year may be
waning.	
    Euro zone fears and the Federal Reserve's indication that it
is less inclined to provide additional stimulus knocked U.S.
stocks, with both the Dow Jones industrial average and
S&P 500 down 1 percent.

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