June 18 (Bloomberg) -- Japanese stocks fell for the third time in four days as the local currency strengthened to a two- week high, diminishing the earnings prospects for makers of cars and electronics.

Honda Motor Co., which gets more than half its sales in North America, extended its losing streak to the longest in 10 months, while electronics maker Sony Corp. declined 3.1 percent. Mitsubishi Corp., a trading company that gets more than half its profit from commodities, slid 4.2 percent as metals prices had the longest stretch of losses in a half year. Mitsubishi Motors Corp. added 3.3 percent on a newspaper report it plans to develop a cheaper electric vehicle.

“Optimism that the yen will weaken to beyond 100 is evaporating,” said Mitsushige Akino, who oversees about $574 million at Ichiyoshi Investment Management Co. in Tokyo. “The economy has clearly hit bottom, but that’s been priced in.”

The Nikkei 225 Stock Average declined 137.13, or 1.4 percent, to 9,703.72 in Tokyo, the lowest close since June 4. The broader Topix index fell 11.82, or 1.3 percent, to 911.21, with two stocks retreating for each that advanced. The value of stocks trading in Tokyo was the lowest since June 8.

The Nikkei recovered to 10,000 last week for the first time in eight months as improved economic indicators boosted investor confidence in the outlook for equities. Merrill Lynch & Co. said yesterday fewer investors were underweight in Japanese equities this month than in May.

Honda, Sony

The yen strengthened versus the dollar yesterday to the 95 level for the first time since June 4. The Japanese currency appreciated to as much as 95.52 from 96.16 at the close of stock trading in Tokyo. A stronger yen diminishes the value of overseas sales for Japanese exporters.

Honda fell for a sixth day with a 2.6 percent drop to 2,605 yen, marking the longest period of decline since Aug. 4. Sony, maker of the PlayStation 3 game machine, sank 3.1 percent to 2,475 yen. Electronics makers were the biggest drag on the Topix.

Mitsubishi, Japan’s largest trading house by value, lost 4.2 percent to 1,793 yen, and closest rival Mitsui & Co. retreated 3.6 percent to 1,139 yen. A gauge of six metals in London fell yesterday for a fourth session, the longest losing streak since a seven-day slump ending Dec. 5.

“After the Nikkei hit 10,000, people’s focus is going back to the patchy state of the global economy,” said Koji Toda, chief fund manager at Resona Bank Ltd. “Investors are taking profit because they know they can’t expect to see a V-shaped economic recovery.”

End of Rally?

Mitsubishi Motors advanced 3.3 percent to 187 yen. The automaker plans to develop an electric vehicle priced at 3 million yen ($31,000) by 2012, cheaper than its current model, the Nikkei newspaper said today. Meidensha Corp., which supplies parts for Mitsubishi Motors’ electric cars, added 6.2 percent to 613 yen, extending yesterday’s 16 percent surge.

“Investors feel environment-related shares will stay solid even if the market enters a downward trend,” said Ichiyoshi’s Akino. “As people become more convinced this rally is coming to a close, they are more eager to buy these shares.”

Nippon Steel Corp., the nation’s largest maker of the alloy, slipped 4.2 percent to 365 yen, leading its peers to the biggest slump among the Topix’s 33 industry groups. Kawasaki Kisen Kaisha Ltd., Japan’s No. 3 shipping line, sank 4.4 percent.

“Investors expected a recovery in Asia’s economy to be faster than other regions and bought shippers, steelmakers and trading companies,” said Hideyuki Ookoshi, who helps oversee $365 million at Chiba-Gin Asset Management in Tokyo. “As the commodity market weakens, they are starting to notice their optimism went too far.”

Also weighing on steelmakers was a report today by the Japan Iron and Steel Federation that domestic production of the alloy dropped by more than a third in May from a year earlier, an eighth-straight monthly drop.

Nikkei futures expiring in September retreated 1 percent to 9,730 in Osaka and Singapore.

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

Last Updated: June 18, 2009 03:18 EDT