Nov. 5 (Bloomberg) -- Japanese stocks fell, dragging the Nikkei 225 Stock Average and Topix index to the lowest in almost a month as earnings reports raised concern that an economic recovery will be weak.

Fuji Media Holdings Inc., a television broadcaster, dropped 3.3 percent after cutting its profit forecast. Aoyama Trading Co., a chain of menswear stores, sank 2.6 percent after posting a loss. Sanyo Electric Co. tumbled 20 percent after Panasonic Corp. bid for the battery maker at a discount.

“The market is now reaching the point where monetary stimulus policies stop pushing up asset prices and earnings become the main focus,” said Koichi Kurose, who helps oversee $4.6 billion as chief strategist at Resona Bank Ltd. “Japan’s stocks aren’t likely to fare well in an earnings-driven market as shares are already quite expensive compared with prospective earnings.”

The Nikkei 225 dropped 1.3 percent to 9,717.44 at the close of trading in Tokyo. The broader Topix retreated 0.7 percent to 874.96, with almost three stocks falling for each that rose. Both measures sank to the lowest since Oct. 6, and shares in the Topix are valued at 37 times estimated earnings, compared with 20 at the start of 2009.

Property developers and power utilities declined on concern they’ll have to pay higher interest rates when they sell debt, after yields on government bonds rallied to a three-month high. None of the 17 companies in the Topix Electric Power & Gas Index rose today.

Fuji Media declined 3.3 percent to 129,100 yen after cutting its full-year net income forecast by 41 percent, citing advertising revenues. JPMorgan Chase & Co. reduced its rating on the shares to “neutral” from “overweight.”

‘Profit Recovery Unlikely’

Aoyama Trading lost 2.6 percent to 1,407 yen in Osaka after posting a net loss of 1.99 billion yen ($22 million) for the six months ended Sept. 30, falling short of its forecast of a 100 million yen profit, because of a writedown on derivatives.

“A sustained recovery in corporate profit seems unlikely as sales continue to fall, prompting investors to focus on short-term dealing,” said Kenichi Hirano, general manager at Tokyo-based Tachibana Securities Co. “Without a drastic improvement in earnings, the current valuations can’t be sustained.”

The Topix has risen 1.8 percent this year and the Nikkei 225 has climbed 9.7 percent, the smallest increases among the world’s 10 largest stock markets. The Standard & Poor’s 500 Index in the U.S. has advanced 16 percent this year, and the Dow Jones Stoxx 600 Index in Europe has added 21 percent.

Sanyo Electric Tumbles

Sanyo Electric, the world’s largest maker of rechargeable batteries, tumbled 20 percent to 172 yen after Panasonic said it will offer to buy the company at 131 yen per share, compared with yesterday’s closing price of 216 yen. Sanyo had the sharpest drop in the Nikkei 225 and was the most-actively traded stock in Tokyo.

Sumitomo Realty & Development Co., Japan’s third-biggest real-estate company, dropped 2.2 percent to 1,682 yen. Chubu Electric Power Co., Japan’s second-biggest buyer of coal and natural gas for power stations, fell 2.1 percent to 2,075 yen.

Japanese government bonds declined, boosting 10-year yields to 1.44 percent, the highest level since Aug. 11, as concerns over increasing debt sales damped demand at an auction. The U.S. Federal Reserve repeated yesterday that it will keep interest rates near zero for “an extended period.”

Consumer lenders advanced after Takehiro Tsuda, an analyst at Citigroup Inc. in Tokyo, lifted his stance on the industry to “neutral” from “bearish” in a report dated yesterday, citing the possibility the government will relax loan restrictions.

Acom Co., Japan’s largest consumer-finance company by market value, Promise Co. and Takefuji Corp. each had their individual ratings boosted as well. Acom gained 7.6 percent to 1,596 yen, Promise rose 15 percent to 786 yen and Takefuji Surged 19 percent to 488 yen.

To contact the reporter for this story: Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net

Last Updated: November 5, 2009 01:55 EST