Aug. 19 (Bloomberg) -- Japan’s benchmark stock indexes extended this week’s declines to their lowest levels this month on concern share prices had risen too high given the outlook for earnings growth.

Kawasaki Kisen Kaisha Ltd., a shipping line that forecast a loss last month, fell 2.3 percent after transport rates dropped. Tokio Marine Holdings Inc., Japan’s biggest listed insurer, sank 2 percent after regulators said new guidelines may cut solvency ratios. Sony Corp., expecting a second year of losses, sank 3.9 percent after cutting the price of its PlayStation 3 game player.

The Nikkei 225 Stock Average drifted between gains and losses at least 10 times before finishing down 0.8 percent at 10,204.00 in Tokyo. The broader Topix index fell 0.7 percent to 943.25, with more than two stocks declining for each that rose. Both gauges sank to a level not seen since July 30.

“Equities are not cheap relative to their earnings prospects and people are feeling the recent rally has been stretched to its limit,” said Naoki Fujiwara, chief fund manager at Tokyo-based Shinkin Asset Management Co., which oversees the equivalent of $3.7 billion.

The Nikkei surged 50 percent from a 26-year low on March 10 to Aug. 14 as government spending boosted production and corporate earnings. The rally lifted stock prices in the index to 41.5 times estimated net income from as low as 9.5 times last year, according to Nikkei Inc., which compiles the gauge.

The measure dropped 3.1 percent on Aug. 17, the most since March, after China’s Shanghai Composite Index plunged 5.8 percent. Japanese stocks accelerated declines in the final 30 minutes of trading today, following another drop in China.

Insurance Regulations

Kawasaki Kisen, Japan’s No. 3 shipping line, lost 2.3 percent to 376 yen, and bigger rival Mitsui O.S.K. Lines Ltd. declined 2.2 percent to 568 yen. The Baltic Dry Index, a measure of shipping rates for commodities, dropped 2.5 percent in London yesterday, breaking a three-day winning streak.

Tokio Marine sank 2 percent to 2,650 yen and T&D Holdings Inc., Japan’s second-biggest insurance company, slid 1.2 percent to 2,845 yen. Insurers dropped the most among the 33 industry groups on the Topix, followed by shipping lines.

Japan’s financial regulator said yesterday that solvency ratios at almost all insurers will probably fall once a new standard takes effect. The measure, which will affect how companies calculate their ability to pay claims, is under review and expected to be released by June.

Sony slid 3.9 percent to 2,500 yen, the lowest close since July 29. The company yesterday cut the price of the PlayStation 3 by a fourth in the U.S., with comparable reductions in Europe and Japan. The company was the heaviest single drag on the Topix.

Sanyo, Swine Flu

Sanyo Electric Co., the world’s biggest maker of rechargeable batteries, soared 10 percent to 247 yen and was the most actively traded stock by value in Tokyo. It also had the steepest gain in the Nikkei 225. Toyota Motor Corp. will start to buy lithium-ion batteries from Sanyo in about 2011 for its hybrid vehicles, the Nikkei newspaper reported today. Sanyo neither confirmed nor denied the report.

“I don’t think those snapping up Sanyo today seriously expect a boost in its earnings from a possible deal with Toyota,” said Shinkin’s Fujiwara. “People in the market have few trading cues nowadays. They probably wondered this morning what they should do, then opened the newspaper and found the article,” which prompted them to buy for quick returns.

Makers of medical products rallied after Japan confirmed a second death from swine flu yesterday. Shikibo Ltd., which makes masks, soared 26 percent, and fabric producer Daiwabo Holdings Co. surged 6.6 percent.

Nikkei futures expiring in September declined 0.9 percent to 10,210 in Osaka and lost 1 percent to 10,185 in Singapore.

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

Last Updated: August 19, 2009 04:21 EDT