Nikkei drops to 1-month low as China PMI impact drags

Japan's Nikkei share average dropped to a one-month low on Friday morning as weak Chinese manufacturing activity data continued to hurt sentiment - keeping the market risk-averse before the US Federal Reserve's policy-setting meeting next week.

Friday's notable losers included Daiichi Sankyo Co, which tumbled 5.8% to a near three-month low of 1,901 yen after the US Food and Drug Administration said it had banned more products from Daiichi Sankyo's Indian subsidiary Ranbaxy Laboratories from entering the United States due to manufacturing violations.

Daiichi Sankyo said it is now confirming the situation with Ranbaxy.

Nitto Denko swam against the tide, rising 10% to 4,680 yen, its highest since Dec 11. It was the eighth-biggest traded stock by turnover after it reported strong December monthly sales for materials used in flat panel screens and tablet devices. Citigroup raised its target price to 5,400 yen from 5,200 yen.

 

The Nikkei dropped 1.7% to 15,431.85 in mid-morning trade after falling to as low as 15,377.64, the lowest since Dec 18. The index is about to fall below 15,337.99, a 38.2% retracement of the rise to a December high from a October low. On December 30, the Nikkei reached as high as 16,320.22, the highest level in six years.

Analysts said investors have avoided taking risks for mainly two reasons - weaker-than-expected December US jobs data and disappointing manufacturing data in China released on Thursday.

"Sentiment was already poor because of the poor US jobs data released early this month, and it was exacerbated by the Chinese figures," said Naoki Kamiyama, head of Japan equity strategy at Bank Of America Merrill Lynch. "The market is very cautious about the next US jobs data to be released in two weeks. If the market is disappointed again, the Japanese market may enter a correction phase."

He noted that investors were focused on the Fed's next policy meeting, scheduled for January 28-29, to be quickly followed by Chairman Ben Bernanke's handover to current Vice Chair Janet Yellen on January 31.

The Topix dropped 1.3% to 1,270.89.

Exporters were lower as the dollar neared a two-week low of 102.97 yen. Toyota Motor Corp shed 1.3%, Honda Motor Co dropped 1.4% while Panasonic Corp fell 2.4%. (A stronger yen erodes Japanese exporters' overseas earnings when repatriated.)

The JPX-Nikkei Index 400, which started trading in January, shed 1.3% to 11,471.99.