May 18 (Bloomberg) -- Japanese stocks slumped as losses at Panasonic Corp. and Aozora Bank Ltd. rekindled concern the recession will continue to weigh on earnings.

Panasonic, the world’s largest maker of plasma TVs, sank 7.6 percent after predicting a second-straight loss, while Aozora lost 5 percent. Canon Inc., which gets about a third of its sales from Europe, slipped 4.8 percent after the region’s economy shrank the most in at least 13 years and the yen strengthened. Unitaka Ltd. led a surge by makers of medical masks on a media report Japan’s confirmed cases of swine flu exceeded 100.

The Nikkei 225 Stock Average retreated 226.33, or 2.4 percent, to 9,038.69 at the close of trading in Tokyo. The broader Topix index slipped 21.94, or 2.5 percent, to 859.71, trimming its advanced this year to 0.1 percent.

“Until we see the economic outlook improve and earnings show signs of rising above current levels, we won’t see stocks push to higher levels,” said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co., which oversees about $3.3 billion. “Europe’s spending less on stimulus, so their ability to recover from the recession is weaker than the rest of the world.”

Nikkei-listed companies reporting fiscal 2008 results in the past month have posted a cumulative loss of 21 billion yen ($221 million) compared with profit of 172 billion a year ago, based on Bloomberg data. Electronics companies and banks were the biggest contributors to the Topix’s decline today.

Suzuki Motor Corp., which holds the top market share for autos in India, climbed 2 percent on speculation Prime Minister Manmohan Singh’s election victory will usher in reforms that will boost economic growth.

“Cracks Appearing”

Panasonic lost 7.6 percent to 1,344 yen, the sharpest retreat since Jan 13. The company said on May 15 it expects to lose 195 billion yen this year after posting a 379 billion yen loss for the year ended in March. Nomura Holdings Inc. and Nikko Citigroup Inc. both lowered their ratings on its stock.

“Amid concerns about a global slowdown in demand in the consumer electronics industry, we think excessive expectations have been priced in,” Nikko Citi’s Kota Ezawa, who cut Panasonic to “sell” from “hold,” wrote in a report. “Cracks are appearing in balance sheet quality and earnings management, which had been stable.”

Rival Sony Corp., the maker of the Playstation 3 game console, tumbled 5.8 percent to 2,420 yen. Car navigation equipment maker Pioneer Corp. dropped 5.5 percent to 259 yen. Yokogawa Electric Corp., the world’s biggest maker of electronic measuring tools, plummeted 15 percent to 446 yen, leading drops on the Nikkei, after forecasting a wider operating loss.

Europe Contracts

Canon slumped 4.8 percent to 3,150 yen. Ibiden Corp., a maker of diesel exhaust filters that generates a quarter of its profit in Europe, tumbled 3.8 percent to 2,630 yen. Mazda Motor Corp., which exports about 85 percent of its domestic production, slumped 2.6 percent to 226 yen.

Gross domestic product in the 16-member euro region fell 2.5 percent from the fourth quarter, the biggest decline since the data were first compiled in 1995, the European Union’s statistics office said on May 15. That exceeded the 2 percent contraction economists expected in a Bloomberg survey and followed a 1.6 percent drop in the prior three months.

“Concerns are building about the health of Europe,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “That’s having an effect on the currency market and creating a headwind for export companies.”

The yen jumped to as high as 94.55 against the dollar today, the strongest since March 20, and 126.98 versus the euro, the highest since April 29. A stronger local currency diminishes the value of overseas sales for Japanese companies.

Medical Masks

Unitaka and Toyobo Co., Osaka-based makers of materials used in medical masks, led gains on the Nikkei, climbing more than 7 percent. Chugai Pharmaceutical Co., the local distributor of the antiviral drug Tamiflu, added 4.6 percent to 1,849 yen.

Japan now has 125 confirmed cases of swine flu, Chief Cabinet Secretary Takeo Kawamura said. Mitsubishi UFJ Financial Group Inc., Japan’s No. 1 listed lender, said one of its employees in Kobe contracted the virus. Its shares slipped 3.4 percent to 592 yen.

Suzuki jumped 2 percent to 2,040 yen. Kansai Paint Co., which has a 20 percent share of the Indian paint market, rose 3.1 percent to 603 yen.

India Election

India’s ruling Congress party won its most seats since 1991. The victory will enable the party to start forming a new government today without needing the support of communist lawmakers.

“The election victory for the ruling party will make it easier to push through stimulus policies and financial reform,” said Hiroaki Osakabe, a fund manager at Tokyo-based Chiba-Gin Asset Management Co., which oversees about $1 billion. “That’s giving a boost to companies such as Suzuki and Kansai Paint.”

Mizuho Financial Group Inc., Japan’s No. 2 listed bank, sank 3.8 percent to 228 yen after posting a 588.8 billion yen loss for the year ended in March as falling stock prices forced the company to post writedowns on securities. Smaller rival Aozora Bank lost 5 percent to 134 yen after posting a wider- than-forecast deficit on bad-loan costs and drops in overseas investments.

Inpex Corp. retreated 3.9 percent to 671,000 yen. Mitsui & Co., which generates more than half its profits from commodities dealing, slumped 4.2 percent to 1,075 yen.

Crude oil for June delivery fell 3.9 percent to $56.34 a barrel in New York on May 15, the biggest drop since April 20.

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

Last Updated: May 18, 2009 02:57 EDT