Nov. 7 (Bloomberg) -- Japan stocks fell a second day, paring a weekly gain, as the slowing global economy and stronger yen prompted Toyota Motor Corp. and Olympus Corp. to cut profit targets by more than half.

Toyota, the world's second-biggest automaker, dropped 9.2 percent after saying tumbling U.S. sales would damp earnings, while car-parts affiliate Denso Corp. plunged 15 percent. Olympus, an endoscope and camera maker, sank 9.3 percent, as a report showed U.S. jobless claims surged. Inpex Corp., Japan's largest oil explorer, lost 8.9 percent after crude fell to the lowest level in 19 months. Drugmaker Shionogi & Co., which this week posted a first-half profit gain, climbed 4.9 percent.

The Nikkei 225 Stock Average slid 316.14, or 3.6 percent, to close at 8,583.00 in Tokyo, paring an earlier 7.1 percent decline. The broader Topix index fell 30.30, or 3.3 percent, to 879.00. The Nikkei, down 44 percent this year, posted a weekly gain of 0.1 percent, while the Topix advanced 1.4 percent.

``As sales are slowing in developing countries, Toyota and other automakers can't mitigate slumping demand in North America,'' said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages about $14 billion in Tokyo.

The International Monetary Fund yesterday predicted the first simultaneous recession in the U.S., Japan and euro region in the post-World War II era. The Topix lost 40 percent of its value this year as the credit crisis, triggered by the collapse of the U.S. mortgage market, wiped $28 trillion of value from stocks globally.

Toyota cut its annual profit target by 56 percent to 550 billion yen ($5.64 billion), the lowest in nine years. Tighter credit and worsening consumer sentiment drove industrywide U.S. car sales last month to the lowest level since 1983 on an annualized basis. The yen's 12 percent gain against the dollar and 24 percent jump versus the euro this year are also squeezing earnings at Toyota and other Japanese exporters.

Economy Fears

Toyota sank 9.2 percent to 3,460 yen. Denso fell 15 percent to 1,756 yen, the sharpest drop since October 1987 and leading declines on the Nikkei. Mazda Motor Corp., which earns more than half its profit from Europe, slumped 9.8 percent to 194 yen. A gauge of automakers was the worst performer among 33 industry groups on the Topix, followed by an index of mining companies.

``I didn't imagine Toyota would be forced to lower its earnings forecast by this degree,'' Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages about $53 billion, said in an interview with Bloomberg Television. ``We expected the global economy would weaken, but it's deteriorating much faster than we feared.''

The Japanese currency appreciated against the euro to as much as 122.48 from 126.07 at the close of stock trading in Tokyo yesterday. A stronger yen lowers the value of repatriated sales of Japanese companies.

U.S. Jobs

Olympus, which counts Europe as its biggest overseas market, sank 9.3 percent to 1,611 yen. The company yesterday slashed its annual net income outlook by 56 percent, citing the yen's strength and a slowdown in the global economy.

The Labor Department said U.S. workers receiving unemployment-insurance checks totaled 3.843 million in the week ended Oct. 25, the highest level since 1983. The report foreshadowed a surge in the unemployment rate when the department releases its October jobs report later today.

The worsening economic outlook diminished prospects for commodities demand. Crude oil for December delivery fell 6.9 percent to $60.77 a barrel in New York yesterday, the lowest settlement price since March 2007.

Inpex dropped 8.9 percent to 546,000 yen, while closest competitor Japan Petroleum Exploration Co. lost 10 percent to 3,750 yen. Mitsui & Co., a trading company that gets more than half its profit from commodities, fell 8.8 percent to 943 yen.

`Good Numbers'

Shares nearly reversed losses in the afternoon as investors seized on food and pharmaceutical shares. Shionogi rallied 4.9 percent to 1,853 yen, almost erasing a 5 percent drop in the past two days. The company said on Nov. 4 that first-half net income rose 9.7 percent, with royalties from overseas sales of the Crestor cholesterol pill up 15 percent.

``Shionogi had good numbers, while many companies are posting worse-than-expected results,'' said Takashi Akahane, an analyst at Tokai Tokyo Research Center Co. ``As confidence in the overall earnings picture declines, money is moving to companies with firm results like Shionogi.''

Ajinomoto Co., Japan's biggest maker of food additives, jumped 3.8 percent to 936 yen, after Nikko Citigroup Ltd. lifted it to ``buy,'' citing a decline in material prices. Fujiya Co. surged 22 percent to 151, the most since January 2000, on a Nikkei newspaper report Yamazaki Baking Co. will raise its stake in the candy maker to more than 50 percent. Yamazaki, Japan's biggest bread maker, fell 1.4 percent to 1,313 yen.

Nikkei futures expiring in December dipped 1.6 percent to 8,660 in Osaka and slumped 3 percent to 8,605 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

Last Updated: November 7, 2008 02:56 EST