Aug. 27 (Bloomberg) -- Japan's stocks declined for a second day after developer Sohken Homes Co. filed for bankruptcy, sparking concern consumers are holding back on purchases as the economy slows.

Sumitomo Realty & Development Co., Japan's third-biggest developer, slumped 2.9 percent while Sohken tumbled by its daily limit. Nissan Motor Co., Japan's third-largest automaker, dropped 4.7 percent after Morgan Stanley cut its price target. Nippon Paper Group Inc. led a gauge of papermakers to the biggest gain in three weeks as investors flocked to companies whose earnings are relatively resilient against an economic slowdown.

``If consumers were confident their salaries would remain secure, they'd buy condos and homes even with 30-year loans,'' said Yoshihiro Ito, senior strategist at Okasan Asset Management Co. in Tokyo, which oversees about $9.3 billion. ``With rising prices and stagnant income growth, that isn't the case now.''

The Nikkei 225 Stock Average dropped 25.75, or 0.2 percent, to close at 12,752.96 in Tokyo. The broader Topix index retreated 5.66, or 0.5 percent, to 1,223.69. More than two stocks declined for each that rose on the Topix. The trading value on the Tokyo Stock Exchange fell to the lowest for a full day since July 2005.

Failures at rival developers exacerbated a worsening property market and difficulty in refinancing debt, Sohken said yesterday when it filed for court protection from 33.9 billion yen ($310 million) in liabilities. The collapse followed those of the parent of Asahi Homes Co. on Aug. 25 and condominium builder Urban Corp., which became Japan's biggest bankruptcy case in six years on Aug. 13.

Wages, Prices

Bankruptcies among Japanese property companies more than doubled to 60 in July from a year earlier, according to Tokyo Shoko Research Ltd. Monthly wages in Japan rose in June at the slowest pace since November, the Labor Ministry said on Aug. 18. Meanwhile, consumer-price inflation in July probably surpassed 2 percent for the first time in a decade, according to the median estimate of 37 economists.

Sumitomo Realty sank to 2,180 yen, while bigger rival Mitsubishi Estate Co. lost 2.1 percent to 2,375 yen. Sohken plummeted 12 percent to 14,100 yen, after having risen by its daily limit in the past six days. C's Create Co., the smallest real-estate company by value on the Topix, plunged 12 percent to 3,690 yen. Developers were the second-biggest losers among 33 industry groups on the Topix after automakers.

Nissan sank to 814 yen and posted the second-steepest drop among stocks on the Nikkei, after Morgan Stanley cut its target price 5.1 percent to 940 yen. Market leader Toyota Motor Corp. lost 2.7 percent to 4,770 yen and Honda Motor Co. slid 2.2 percent to 3,530 yen.

``My friend has switched to Honda's compact car from Toyota's larger sedan because of rising petrol prices,'' said Okasan's Ito. ``When everybody starts doing this, the economy will no doubt slow.''

Defensive Stocks

Nippon Paper surged 5.1 percent to 311,000 yen, leading the Topix Pulp & Paper Index to the biggest advance since Aug. 5. Oji Paper Co., Japan's biggest papermaker, jumped 3.7 percent to 582 yen. Drugmaker Eisai Co. leapt 4 percent to 4,170 yen, while rival Astellas Pharma Inc. climbed 1.7 percent to 4,780 yen. Papermakers and drug companies were the two biggest winners among Topix industry groups.

``Defensive stocks are coming back,'' Bruno Ferrant, an analyst at Japaninvest KK with a ``buy'' rating on Eisai, said by phone today. ``Earnings were not bad among pharmaceutical companies compared with other sectors.''

Paper mills have gained 43 percent as a group and drugmakers have added 22 percent since March 17 when the Topix tumbled to the lowest since June 2005. The gauge has risen 6.4 percent since that time.

Nikkei futures expiring in September were unchanged at 12,780 in Osaka and inched up 0.1 percent to 12,800 in Singapore.

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

Last Updated: August 27, 2008 04:02 EDT