Aug. 17 (Bloomberg) -- Japanese stocks fell, dragging down the Nikkei 225 Stock Average by the most since March, on concern the country’s economic recovery may falter and after U.S. consumer confidence unexpectedly dropped.

Global stimulus measures helped the economy expand for the first time in more than a year last quarter, while private investment shrank, a report showed today. Sony Corp., the maker of Vaio computers, sank 4.1 percent. Nintendo Co., the world’s biggest maker of handheld game consoles, lost 2.6 percent after Credit Suisse Group AG cut its investment rating. Sumitomo Realty & Development Co., Japan’s third-largest developer, plunged 5.8 percent as housing investment slumped.

“The worse-than-expected consumer-confidence report is sending the market lower today,” said Akio Yoshino, chief economist at Societe Generale Asset Management (Japan) Co., which manages the equivalent of $14 billion. “The GDP report was largely in-line. The market is already reflecting a recovery scenario, so it’s hard to generate a positive surprise.”

The Nikkei 225 Stock Average fell 328.72, or 3.1 percent, to 10,268.61 at the close in Tokyo, the steepest retreat since March 30. The broader Topix index slid 2.5 percent to 949.59, with six times as many stocks falling as rising. Both gauges finished last week at the highest level since October.

All benchmark gauges in Asia declined today, led by a 5.8 percent slump in China’s Shanghai Composite Index.

Economic Recovery?

Gross domestic product expanded at an annual 3.7 percent pace in the three months ended June 30, following a revised 11.7 percent decline in the previous quarter, the Cabinet Office said today in Tokyo. A revival in exports and consumer spending contributed to growth, while lower residential and capital spending hindered it. The median estimate of 22 analysts surveyed by Bloomberg News was for a 3.9 percent expansion.

Other reports signaled a global recovery may take longer than investors expected. In New York, the Standard & Poor’s 500 Index slid 0.9 percent on Aug. 14, completing the first weekly decline in more than a month. The Reuters/University of Michigan preliminary index of sentiment fell to 63.2 for August from 66 the month before. Economists had forecast an increase to 69.

Reports also showed Chinese exports dropped in July, lending fell and investment growth slowed, while U.S. retail sales unexpectedly fell, clouding the prospects of a consumer- led recovery. The Shanghai Composite Index’s 5.8 percent drop today was the biggest decline since November.

“The U.S. housing market seems to have bottomed, but employment and consumer spending aren’t showing any response to stimulus measures, hanging a question mark over recovery hopes,” said Yoshihiro Ito, senior strategist in Tokyo at Okasan Asset Management Co., which oversees $7.8 billion. “China’s stormy equity market is also weighing on sentiment.”

Yen, Housing

The yen strengthened to as much as 94.40 today from about 95.27 at the close of trading in Tokyo on Aug. 14, reducing the value of overseas sales when converted into the Japanese currency.

Sony lost 4.1 percent to 2,605 yen today. Nissan Motor Co., Japan’s No. 3 automaker, retreated 3.4 percent to 704 yen.

Nintendo fell 2.6 percent to 24,750 in Osaka. Koya Tabata, an analyst at Credit Suisse in Tokyo, cut the shares to “neutral” from “outperform” on concern sales of the Wii game console will be lower than previously estimated.

Sumitomo Realty slumped 5.8 percent to 2,015 yen. Leopalace21 Corp., a manager of apartment buildings, slid 5.1 percent to 853 yen. A measure of real-estate companies fell the most among the 33 groups in the Topix.

Japan’s GDP report showed housing investment slumped 9.5 percent from the previous quarter, while business spending dropped 4.3 percent, indicating the recovery has largely been driven by government stimulus measures.

Fanuc Ltd., the world’s largest maker of industrial robots, retreated 4.4 percent to 7,440 yen.

Oil Companies

TonenGeneral Sekiyu K.K., a unit of Exxon Mobil Corp., led oil companies lower after forecasting a loss and prices of crude fell. The stock declined 3.1 percent to 902 yen. The company reported a 43 percent plunge in revenue for the first half and reversed its annual forecast to a 5 billion-yen loss from a 9 billion-yen profit.

Nippon Oil Corp., Japan’s largest petroleum refiner, sank 4.2 percent to 530 yen. Nippon Mining Holdings Inc., Japan’s biggest copper producer and an oil refiner, dropped 3.8 percent to 482 yen. Mitsubishi Corp., which generates more than half of its profit from commodities dealing, slumped 3.6 percent to 1,922 yen.

Crude oil for September delivery declined 4.3 percent to $67.51 a barrel in New York on Aug. 14, the biggest one-day drop since July 29. The contract lost as much as 1.7 percent today.

Most Down, Up

CSK Holdings Corp. plunged 8.4 percent to 415 yen, the steepest retreat in the Nikkei 225. The computer-services provider reported a 14 billion yen net loss for the first quarter amid weaker demand from financial institutions, insurers and auto companies.

Denki Kagaku Kogyo K.K., a maker of flu vaccines, had the sharpest advance in the benchmark gauge, rising 5.2 percent after Japan confirmed its first death from swine flu.

The Nikkei rallied 50 percent through Aug. 14 from a quarter-century low on March 10 as improving data on the economy and corporate earnings lifted confidence that the worst had passed. Today’s decline means shares in the gauge trade at 45 times estimated earnings, compared with 17 times a year ago.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Kotaro Tsunetomi in Tokyo at ktsunetomi@bloomberg.net.

Last Updated: August 17, 2009 03:41 EDT