Feb. 23 (Bloomberg) -- Japanese stocks dropped, led by exporters such as Nissan Motor Co. and Bridgestone Corp., after oil prices rose above $51 a barrel, spurring concern that rising energy costs may dent global economic growth and earnings.

Shares of companies that do business in the U.S. including Canon Inc. and Sony Corp. also dropped after the dollar slumped against the yen, threatening to lower the value of their U.S. sales. A government report showing Japan's export growth slowed in January also weighed on stocks.

``The slowdown in the global economy that began last year was mainly due to rising oil prices and that fear is now back to haunt the market,'' said Jun Terasaka, who helps manage the equivalent of $9.6 billion as a fund manager at Toyota Asset Management Co. in Tokyo. ``Stocks are bound to slump further.''

JFE Holdings Inc. led losses by steelmakers after agreeing to pay Brazil's Cia. Vale do Rio Doce 71.5 percent more for iron ore starting April 1.

The Nikkei 225 Stock Average sank 118.89, or 1 percent, to 11,478.82 at 10:02 a.m. in Tokyo. The Topix index lost 10.66, or 0.9 percent, to 1151.83. All 33 industry groups that make up the Topix except for those tracking mining and oil-related shares, slumped.

Nikkei 225 futures for March delivery slipped 1 percent to 11,470 in Osaka and slid 0.9 percent to 11,475 in Singapore.

Higher oil prices raise raw materials costs and may dent consumer spending in the U.S., the world's largest consumer of oil. Crude for March delivery surged 5.8 percent to $51.15 a barrel on the New York Mercantile Exchange, the highest closing price since Oct. 29, in the biggest one-day gain since June 1. Crude futures are up 44 percent from a year ago.

`Double Whammy'

The dollar had its biggest drop since Oct. 8 to 104.04 yen from 105.54 in New York and slumped to as low as 103.93 yen in Asian trading. The Japanese currency recently traded at 104.37.

Nissan, Japan's second-biggest automaker, fell 19 yen, or 1.7 percent, to 1,110. Currency effects hurt operating profit at the automaker by about 15 billion yen ($144 million) in the third quarter, the automaker said earlier this month.

Bridgestone, the world's second-biggest tiremaker, slumped 60 yen, or 2.9 percent, to 2,000. The company last week said it expects materials costs to rise 60 billion yen in 2005 and forecast operating profit, or sales minus the cost of goods sold and administrative expenses, to drop 14 percent this year.

``The combination of oil's jump and the dollar's slump is a double whammy for Japan,'' said Yutaka Miura, a market analyst at Shinko Securities Co. in Tokyo. ``This isn't the time to be betting on exporters and major technology stocks.''

Steelmakers

A government report before the market opened showed exports grew 3.2 percent from a year earlier, compared with December's 8.8 percent gain. Away from home, a private survey showed U.S. consumers, upbeat about their present circumstances, are more skeptical about what the next six months will bring.

The Topix Iron & Steel Index was the second-worst performer among the 33 industry groups that make up the benchmark after a measure tracking rubber products makers including Bridgestone.

JFE Holdings, Japan's second-largest steelmaker, dropped 95 yen, or 3.1 percent, to 2,975. Nippon Steel Corp., the largest in the country, dropped 6 yen, or 2.2 percent, to 271.

Nippon Steel and JFE Steel Corp. yesterday agreed to pay Vale do Rio Doce 71.5 percent more for iron ore, starting April 1, as they compete with mills in China for supplies. JFE's spokesman Hiroshi Okamato said higher prices of iron ore, coal, metal alloys and freight will add 250 billion yen to the company's costs in fiscal 2005.

``The question is whether these steelmakers can pass on the higher costs to end-users and that's the prime concern now for steelmakers,'' said Shinko's Miura.

Still, some investors expect drops in stock prices to be temporary.

Raise Steel Prices

``Iron ore is 20 percent of the cost of finished steel, so they only need to raise steel prices 14 percent to cover this,'' said Robert Howe, who oversees $6.5 billion in assets as a chief investment officer at AIG Global Investment Management Corp. in Tokyo. ``They already have, and will, raise prices further in April. But the market doesn't understand this, and will sell them anyway.''

The Topix measures tracking mining stocks and oil-related companies were the only ones to gain as oil and gold prices surged. Prices for the precious metal in New York rose more than $7 an ounce to the highest this year as the dollar slumped and boosting gold's appeal as an alternative to U.S. assets.

Inpex Corp., Japan's largest oil explorer, jumped 15,000 yen, or 2.7 percent, to 566,000. Sumitomo Metal Mining Co., Japan's top gold producer, climbed 7 yen, or 0.9 percent, to 765.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net.

Last Updated: February 22, 2005 20:06 EST