tokyo August 1, 2012, 12:53 IST
tokyo 08 01, 2012, 13:00 IST
Japan's Nikkei share average ended a four-session winning run on Wednesday as a slew of companies were heavily punished for disappointing earnings and after data showed China's factory activity barely grew in July.
Construction machinery maker Komatsu Ltd <6301.T> and shipbuilder Sumitomo Heavy Industries Ltd <6302.T> were among a raft of companies that cut earnings guidance after being hit by sluggish demand in China, Japan's largest export market.
China's official factory purchasing managers' index fell to an eight-month low in July, suggesting the sector is barely growing, further dampening sentiment.
The Nikkei lost 0.6 percent to 8,641.85 points, slipping back below 8,687.93, the 50 percent retracement of its rally from June 4 to July 4.
"The market feels very rough today. There are a lot of names being really hammered," a hedge fund partner said.
"It seems quite an extreme reaction considering earnings really weren't that bad -- it makes me wonder what expectations people actually had when they bought them."
Komatsu sagged 7.1 percent, after losing as much as 10 percent at one point, and Sumitomo Heavy Industries <6302.T> slumped 14.8 percent to a 40-month low, while Honda Motor Co Ltd <7267.T> sank 5.7 percent after its quarterly operating profit came in below expectations.
But a trader at a foreign bank said some investors took the opportunity to buy call spreads on Komatsu and Honda Motor, betting on a bounce.
Other casualties on Wednesday included printer maker Seiko Epson <6724.T>, which tumbled 15.9 percent to a record low, and precision equipment maker for industrial robots and working tools Nabtesco Corp <6268.T>, which lost 12.9 percent.
Nomura estimated an average increase of 17 percent in Japanese companies' recurring profit this business year, down from 22 percent in May, and was expected to lower the forecast to 14 to 15 percent by mid-August, said Hisao Matsuura, equity strategist at the brokerage.
"I would have thought that most investors would have expected the downgrade but today's share price action ... meant some investors were still optimistic. Of course, such kind of downward revision would have an impact on share price," he said.
Adding to the gloom was fading hopes that the European Central Bank could agree on concrete steps to tackle the euro zone's debt crisis after Germany on Tuesday reiterated its opposition to granting a banking licence to the bloc's new bailout fund.
Investors had expected the ECB would announce steps after its policy meeting on Thursday to keep a lid on the skyrocketing Spanish and Italian bond yields after its chief Mario Draghi's remark last week to defend the euro.
Investors were also hoping the U.S. Federal Reserve would introduce a new round of stimulus, or at least gave further clues that it would act to kick start spluttering growth after it concludes a two-day meeting on Wednesday.
The broader Topix <.TOPX> index dropped 0.9 percent to 729.78.
Nearly 1.58 billion shares changed hands, down from Tuesday's 1.76 billion and last week's average of 1.68 billion.
PANASONIC, SOFTBANK REWARDED
Better-than-expected earnings from Panasonic Corp <6752.T>, NEC <6701.T> and Hirose Electric <6806.T> offered some support to the market, however. They were up between 6.1 and 7.6 percent.
Gains in mobile phone operator Softbank Corp <9984.T>, after announcing a mid-year dividend plan and indirectly raising its monthly flat-rate data offer, also helped limited the Nikkei loss. The stock was up 5.8 percent as the top weighted gainer on the Nikkei.
Olympus Corp <7733.T> dropped 6.8 percent after the scandal-hit endoscope and camera maker revealed it may have broken a U.S. law that bans corporations from offering bribes to win business in overseas market.
Wednesday's fall also followed a lawsuit by medical device maker Terumo Corp <4543.T>, a 2.5 percent stakeholder and one of may firms seeking to tie up with Olympus, which seeks damages for loss of shareholder value from the accounting fraud that rocked the firm last year.
