April 7 (Bloomberg) -- Japanese stocks fell on concern overseas investors are cutting their holdings of the nation's equities amid signs the economy is faltering. NTT DoCoMo Inc. and Aeon Co. led drops among companies that rely on domestic sales.

``Foreigners are pulling money out of Japanese stocks because the recent economic data highlight the fact that the risks have increased,'' said Takashi Kamiya, who oversees $16 billion as chief strategist at T&D Asset Management Co. in Tokyo.

The Nikkei 225 Stock Average lost 0.6 percent to 11,758.67 at 12:35 p.m. in Tokyo. A government report today showed investors outside of Japan sold more shares than they bought for the first time in six months. An index of leading economic indicators yesterday declined to the lowest since November 2001.

The Morgan Stanley Capital International Asia Pacific Index, which measures 944 stocks, fell 0.1 percent to 99.97. DoCoMo and Aeon were the biggest drags on the regional benchmark.

The Philippine Stock Exchange Composite Index was headed for a two-month low on concern the central bank will raise interest rates for the first time in four years today. All other indexes in Asia rose or were little changed, except New Zealand, which fell, and China, where benchmarks rose.

Overseas Selling

NTT DoCoMo, Japan's largest mobile-phone operator, dropped 1.7 percent to 179,000 yen.

Aeon, Japan's largest retailer, fell 3 percent to 1,758 yen. The company said profit may slump by two-thirds this year as it takes a charge for a drop in the value of assets.

Millea Holdings Inc., the country's largest non-life insurer by premium income, slid 1.2 percent to 1.62 million yen.

Overseas investors sold 58.5 billion yen ($537 million) in Japanese stocks, on a net basis, a Ministry of Finance report showed today. The last time investors from outside of Japan were net sellers of stocks was in the week ended Oct. 15.

The selling by foreign investors comes at a time when reports have raised concern over the strength of the world's second-largest economy. Japan's Tankan survey of business sentiment released on April 1 showed confidence among large manufacturers unexpectedly fell to the lowest in a year.

``The fact that foreigners were selling throws a bit of cold water on enthusiasm for Japanese stocks,'' said Tatsuyuki Kawasaki, a fund manager at Kaneyama Securities Co. in Tokyo. ``There aren't a lot of drivers in the market to push stocks higher.''

Investigation

The Philippine Composite was headed for its lowest since Jan. 18. Bangko Sentral ng Pilipinas will likely increase the rate at which it borrows overnight from commercial lenders, at a 13-year low of 6.75 percent, by a quarter of a percentage point. The central bank is expected to announce its decision this afternoon.

Bank of the Philippine Islands, the nation's biggest lender by market value, fell 3.9 percent to 49.50 pesos on concern higher rates will damp loan demand and slow economic growth.

``Higher rates will be bad news for stocks,'' said Grace Cerdenia, chief operating officer at 2TradeAsia.com, a Manila- based company that provides Internet brokering services.

Chinese stocks rose, with key indexes set for three-week highs, after the central bank said it will allow three commercial lenders to set up fund management units, boosting optimism more capital will flow into equity markets.

``There's optimism a large pool of capital is poised to make its way into the stock markets,'' said Liu Xiaohong, who helps manage the equivalent of $122.7 million with Guolian Fund Management Co. in Shanghai.

China Merchants Bank Co. led banks higher. The Shanghai Composite Index, which tracks yuan-denominated A shares and foreign-currency B shares, rose 2 percent to 1239.59.

To contact the reporter on this story: Darren Boey in Hong Kong at dboey@bloomberg.net; Michael Tsang in Tokyo at mtsang1@bloomberg.net.

Last Updated: April 7, 2005 00:02 EDT