May 30, 2012 / 11:33 PM / 5 years ago

Nikkei faces sharp drop triggered by euro zone tension

TOKYO, May 31 (Reuters) - Japan's Nikkei share average is
set to fall sharply on Thursday, pressured by a strong yen and
heightened risk aversion due to fears Spain and Italy are
increasingly unable to finance their debt, adding to an already
precarious euro zone debt crisis. 	
    Spanish 10-year bond yields surged to a six-month high on
Wednesday, while yields of Italian 10-year bonds breached the 6
percent danger level. The worsening health of Spanish banks is
also weighing on market sentiment. 	
    Market players said the Nikkei was likely to trade between
8,450 to 8,600 on Thursday after Nikkei futures in Chicago closed at 8,500, down 1.3 percent from the close in
Osaka of 8,610.	
    Investors will be watching closely to see if the benchmark
index shatters the next support level at 8,500, or rebounds
sharply as it did on May 24. 	
    "It all depends on whether buying on the dip will come into
play as Japanese stocks are spectacularly cheap now," said
Toshiyuki Kanayama, senior market analyst at Monex. "The
price-to-book ratio of the Nikkei is now at 0.9." 	
    By comparison, the price-to-book ratio of the S&P 500 stands
at 2.1. U.S. stocks tumbled overnight as investors backed away
from risky assets on fears of Italy and Spain's worsening fiscal
health, although it is hoped that important U.S. data later in
the week will move Wall St independent of events in Europe.	
    Japanese exporters will have to battle against a firmer yen,
boosted to 79.07 against the dollar as investors rush to the
"safe haven" currency, with the euro also wallowing at a 4-1/2
month low of 97.81 yen. 	
    The Bank of Japan bought 39.7 billion yen of exchange-traded
funds on Wednesday to support the market, and both the Nikkei
and Topix pared losses in the afternoon session. The
Nikkei closed down 0.3 percent to 8,633.19.  	
    A persistently strong yen is one factor behind the Nikkei's
9.3 percent fall this month, in addition to concerns about
slowing growth in China and a faltering U.S. recovery. 	
    	
> Europe's deepening crisis drags Wall St lower        
> Euro falls 1 pct vs U.S. dollar to near 2-year low   
> Europe woes push Treasury 10-yr yield to 60-yr low   
> Gold rallies late as risk rout revives haven bid     
> Oil hits 6-month low as risk aversion sweeps markets 	
    STOCKS TO WATCH	
    -NEC CORP 	
    NEC is selling almost its entire residual stake in Anritsu
Corp, Thomson Reuters publication IFR reported. The
block trade of 7.65 million shares, valued at 6.7 billion yen
based on Wednesday's closing price of 874 yen, will cut down
NEC's holdings to 0.5 percent from almost 6 percent, IFR said.	
    -MARUBENI 	
    Trading house Marubeni Corp was downgraded by S&P to BBB
with a negative outlook after it bought U.S. grain merchant
Gavilon for $5.6 billion, including $2 billion of debt. S&P said
it was equivalent to 33 percent of Marubeni's total capital as
of March 2012 and the purchase was likely to weaken its capital
quality.	
    -RENESAS ELECTRONICS CORP 	
    Renesas Electronics Corp is to request capital injections
from its three largest stakeholders on Thursday, the Nikkei
business daily reported. The troubled chipmaker, whose share
price has slumped 43.8 percent this month, will ask NEC Corp.
, Hitachi Ltd. and Mitsubishi Electric Corp.
 to accept a private placement of shares and to
guarantee debt.

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