Japan Stocks Fall as U.S. Services Contract; Nintendo Drops

Feb. 6 (Bloomberg) -- Japanese stocks dropped for a second day after U.S. service industries contracted at the fastest pace in six years, stoking concern Japan's biggest export market is in a recession.

Nintendo Co., which sold three times as many Wii consoles in the U.S. as in Japan last quarter, sank to a seven-month low. Millea Holdings Inc., Japan's biggest insurance company by value, tumbled after Fitch Ratings said it may downgrade the biggest bond insurer in the U.S.

The Nikkei 225 Stock Average lost 504.77, or 3.7 percent, to 13,240.73 as of 1:13 p.m. in Tokyo. The gauge earlier dropped as much as 600 points. The broader Topix index retreated 46.00, or 3.4 percent, to 1,309.48.

Japan's growth may have peaked at 1.6 percent last quarter following an increase in net exports, according to economists. Rising shipments abroad accounted for most of the overall expansion as domestic demand rose by only 0.1 percent, economists estimated. Companies are now scaling back production as growth slows in the U.S.

``There's an increasing chance that the U.S. will post negative growth in the first quarter, and that's tough news for cyclical markets like Japan,'' said Akio Yoshino, chief economist at Societe Generale Asset Management (Japan) Co., which oversees about $16 billion.

The Institute for Supply Management's U.S. non-manufacturing index fell in January below the 50 threshold of growth, sending the Standard and Poor's 500 Index to the biggest decline in almost a year.

All 33 industry groups on the Topix index fell. Twenty-three companies retreated for every one that rose.

Nintendo, Canon

Nintendo tumbled 5.9 percent to 45,800 yen, set for the lowest close since July 2. Honda Motor Co., which generates more than half of its sales in North America, sank 4.2 percent to 3,170 yen.

Millea slumped 6 percent to 4,050 yen, leading a drop by the Topix's nine-member insurer index. Fitch Ratings yesterday put MBIA Inc.'s AAA rating under review for a downgrade after updating its assumptions for higher losses on subprime-related securities.

Orix Corp., Japan's biggest non-bank financial company, was untraded and poised to fall by its trading limit of 2,000 yen after slashing its net-income forecast for this fiscal year. Brokerages including Goldman, Sachs & Co. and Nomura Holdings Inc. lowered their ratings on the stock.

Lower Forecasts

Rohm Co., the maker of parts for Nintendo's Wii game controller, slumped 6.4 percent to 7,460 yen in Osaka, headed for the lowest close since January 1997. The Kyoto-based company yesterday reduced its annual net-income target by 25 percent for this fiscal year, triggering Mizuho Securities Co.'s rating downgrade to ``hold'' from ``buy.''

Among the 705 companies on the main board of the Tokyo Stock Exchange that have reported earnings for the nine months to December, 15 percent have lowered their full-year profit forecasts, while 6.5 percent have boosted estimates, according to a Shinko Research Institute Ltd. report released yesterday.

Sohgo Security Services Co. plummeted 17 percent to 1,433 yen, the biggest decline since it was listed in October 2002. The Tokyo-based company yesterday cut its annual profit forecast by 6.1 percent.

Nissin Food Products Co. plunged 8.4 percent to 3,280 yen, set for the biggest drop since December 1997, after the company's plan to merge its frozen-food business with Japan Tobacco Inc. fell apart after a tainted-food scare. Japan Tobacco slipped 1.6 percent to 568,000 yen.

Goldman added Japan Tobacco to its ``conviction buy'' list on the view that the impact of the food recall will be limited and the company represents a good bet as global growth slows.

Otsuka Corp., a developer of computer-information systems, tumbled 12 percent to 7,310 yen, the biggest decline on the MSCI World Index. The company yesterday forecast net income will fall 15 percent this year.

Nikon Corp., the world's second-largest maker of single-lens reflex cameras, added 3.3 percent to 2,850 yen. The company yesterday raised its net-income estimate for the year ending March 31 by 5.7 percent, helped by new models.

Nikkei futures expiring in March declined 4.6 percent to 13,240 in Osaka.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

To contact the editor responsible for this story: Nicolas Johnson at nicojohnson@bloomberg.net.