Nikkei falls below 13,000 to two-month low, nears bear market territory

 

Japan's Nikkei average ended below 13,000 for the first time in two months on Thursday in choppy trade, extending its decline from a 5-1/2 year high hit last month to the verge of bear-market territory.

 

Analysts said that the sour mood may persist for a while as the market is starting to price in fundamentals including corporate earnings after Prime Minister Shinzo Abe's reflationary policy and the central bank's aggressive monetary easing sparked the rally.

 

The Nikkei dropped 0.9% to 12,904.02, its lowest close since April 5. Trading was volatile with the index rising as high as 13,238.53 earlier.

 

Should the Nikkei fall to 12,754, or down 20 % from the 5-1/2 year high reached on May 23, it will have entered a bear market.

 

With the dollar trading below 100 yen, exporters took a hit.

 

Toyota Motor Corp dropped 1.6% and was the second-most traded stock by turnover. Honda Motor Co shed 1.0% and Sony Corp  shed 2.0%.

 

The Topix fell 1.8% to 1,070.77 in moderate volume, with 4.37 billion shares changing hands, compared with last month's daily average volume of 4.67 billion shares.

 

"We are in the transition phase... The Nikkei has lost a substantial amount of points already, but a correction period will take longer," said Masayuki Kubota, senior fund manager at Daiwa SB Investments.

 

"It usually takes more than three months for the market to start pricing in companies' fundamentals, and we are in the middle of the process."

 

The market has had a torrid time over the past two weeks, with trading characterized by violent price moves and huge drops, as investors were spooked by worries over slowing growth in China, and uncertainty over whether the US Federal Reserve would roll back its stimulus this year.

 

Analysts said that once US jobs data is out on Friday, the market will likely find a direction.

 

"The market itself is confused... Right now, there are conflicting views. A US economic recovery should be positive for the Japanese market, but if the Fed cuts its stimulus because the economy is showing sustainable growth, it hurts the market," said Takuya Takahashi, a strategist at Daiwa Securities.

 

"But the market won't stay directionless forever. Investors will probably figure out some direction once jobs data is out."

 

Takashi also said that the market may see further lows in the coming days, but the Nikkei should be supported around 12,634, the closing price on April 4, when the Bank Of Japan announced sweeping monetary easing.

 

Despite the recent selloff, the benchmark Nikkei is still up 24.1% so far this year.

 

On Thursday, Tokyo Electric Power Co , the most traded on the main board, sagged 7.4%, extending the previous session's 16.3% slide after the operator of crippled the Fukushima Daiichi nuclear plant reported more radioactive water leak at the site.