Reuters: Financial Services and Real Estate: Nikkei faces sharp drop triggered by euro zone tension

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Nikkei faces sharp drop triggered by euro zone tension May 30th 2012, 23:33 Wed May 30, 2012 7:33pm EDT 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. Link this Share this Digg this Email Reprints

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