Japanese Stocks Fall on Italy Bond Yields, Daiwa Rating Cut

Japan’s Topix index headed toward its steepest drop in three months after surging Italian bond yields stoked concern that Europe’s debt crisis is spreading and Daiwa Securities Group Inc. had its credit rating cut.

Sumitomo Mitsui Financial Group Inc., Japan’s second- biggest lender, fell 5.4 percent. Brokerages declined after Moody’s Investors Service downgraded Daiwa’s credit rating and said it may cut Nomura Holdings Inc.’s as global expansions by Japan’s two biggest securities firms unravel. Hitachi Construction Machinery Co. led machinery firms lower after orders declined more than forecast.

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Japan quake to keep stock investors wary

The growing devastation in Japan may accelerate the short-term negative sentiment in a U.S. equity market already seen as vulnerable, but ongoing weakness is likely to be confined to specific sectors.

The massive earthquake and tsunami in Japan are estimated to have killed 10,000 people and left officials scrambling to avoid meltdowns at three nuclear reactors.

The disaster hit commodities markets hard on Friday, and brought on a flurry of short bets against Japanese stocks.

The effects on the U.S. market are harder to determine. The S&P 500 fell below its 50-day moving average last week and support appears to be waning, despite a rally on Friday.

In the short term, investors are likely to focus on the ramifications for energy companies, particularly nuclear power. Japanese officials said there may have been a partial meltdown at the No. 1 reactor of a nuclear plant in Fukushima.

"The disaster could prove to be a setback for nuclear power as an alternative energy source," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Whether or not we see a reaction in utilities and engineering and construction companies remains to be seen."

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Nikkei hits 7-month high

Japan’s Nikkei average rose to a fresh seven-month high on Wednesday, reflecting general bullishness in global equities markets, but the market lacked energy to extend gains ahead of holidays.

Strength in resource-related stocks in the wake of a rally in commodity prices and inflows into domestic demand-led shares, such as banks and real estate, bolstered overall sentiment to
draw steady bargain-hunting, traders said.

But investors turned reluctant to chase Tokyo shares too strongly or to hold on to large buy positions ahead of a public holiday in Japan on Thursday and holidays in overseas markets this week and next.

“Sentiment is being lifted by rises in domestic demand-led stocks like banks, along with gains in resource-related shares, but the market turned somewhat cautious as the Nikkei approached
10,420.74,” said Takashi Ohba, a senior strategist at Okasan Securities.

That is where futures and options contracts expiring in December settled earlier this month. It is being closely watched by market participants as an important technical point.

The benchmark Nikkei .N225 ended the morning session up 0.1 percent or 5.95 points at 10,376.48, after touching a fresh seven-month high of 10,394.22.

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Japan hopes for big US shopping season

Japans stock market is hoping for a strong US shopping season to set the tone for the coming week, amid continued concern about the eurozone and its single currency, analysts say.They added on Friday that heightened tensions between the two Koreas has not directly harmed the Tokyo bourse, although the situation poses risks to the region.Daiwa Securities said the dollars continued relative strength — possibly supported by an expected strong US shopping season — could boost the Nikkei index.Further weakening of the yen against the dollar can increase the possibility of the Nikkei climbing higher, it said in a note to clients.The US dollar crawled up to 83.78 yen on Friday afternoon from 83.38 yen a week earlier thanks to a series of bright US economic releases.

Read the rest of the story: Japan hopes for big US shopping season | Finance | BigPond News.