Nikkei 225 Slumps the Most in Seven Weeks on China Growth Concern, Ratings

Japan’s Nikkei 225 Stock Average plunged the most in seven weeks on concern China will act further to slow inflation and as steelmakers and banks dropped after analysts cut investment ratings.

TDK Corp., an electronics maker that gets more than 30 percent of its sales from China, dropped 3.6 percent. Nippon Steel Corp. and JFE Holdings Inc., Japan’s top-two steelmakers, fell at least 2.6 percent after Mizuho Securities Co. lowered its recommendations on the shares. Mitsubishi UFJ Financial Group Inc., the country’s largest bank by market value, slumped 2.2 percent following a rating cut at Credit Suisse Group AG.

“Worries that China will raise the interest rate are increasing,” said Hideyuki Ishiguro, assistant manager at investment strategy department at Okasan Securities Co. in Tokyo. “People are worried growth in China would slow down if the country tightens its policies.”

The Nikkei 225 fell 1.9 percent to 9,937.04 at 3 p.m. in Tokyo, the most since Oct. 12 and the first close below 10,000 since Nov. 17. The broader Topix index lost 1.6 percent to 860.94, with six times as many stocks retreating as advancing. All but one of the Topix’s 33 industry groups dropped.

The Nikkei decreased the most among major equity gauges in the Asia-Pacific region. Declines accelerated this afternoon after a plunge by the Shanghai Composite Index in China, Japan’s biggest export destination, and as the euro weakened against the yen, cutting the outlook for earnings from business in Europe.

Japan’s industrial production fell and the unemployment rate unexpectedly climbed in October, the government and the statistics office said today, providing early signs that the country’s economy will likely shrink this quarter.

Best Performer

The Nikkei 225 rose at the fastest pace among gauges for the world’s 40 largest equity markets this month to yesterday, when it climbed to its highest close since June. The 8 percent gain for all of November was the gauge’s biggest monthly advance since March.

This year, the Nikkei has fallen 5.8 percent, compared with increases of 6.5 percent for the Standard & Poor’s 500 Index in the U.S. and 3.3 percent for the Stoxx Europe 600 Index. Stocks in the Japanese benchmark are valued at 17.4 times estimated earnings on average, versus 14 times for the S&P 500 and 11.6 times for the Stoxx 600.

TDK, the world’s largest maker of magnetic heads for disk drives, tumbled 3.6 percent to 5,390 yen. Hitachi Construction Machinery Co., which is the world’s biggest maker of giant excavators and gets more than one-fourth of its sales in China, sank 3.1 percent to 1,908 yen. Komatsu Ltd., a maker of earth movers that gets about 20 percent of its sales in China, retreated 2.4 percent to 2,318 yen.

Inflation in China

China needs to raise interest rates by another 200 basis points to curb inflation, given existing excess liquidity, Zhong Jiyin, an economist with the Chinese Academy of Social Sciences, wrote in a commentary in the China Daily today.

China’s Purchasing Managers’ Index, a gauge of manufacturing, is scheduled to be released tomorrow.

The yen appreciated to 109.99 against the euro today, the highest level since Sept. 15. A stronger yen reduces the value of overseas income at Japanese companies when converted into their home currency.

Steelmakers declined the most among the Topix’s 33 industry groups today. Nippon Steel tumbled 4.5 percent to 277 yen, the most since October 2009. JFE Holdings lost 2.6 percent to 2,661 yen. The companies were cut to “neutral” from “outperform” at Mizuho Securities, which said profit will miss forecasts in the fiscal year ending March. Sumitomo Metal Industries Ltd., which was reduced to “underperform” from “neutral,” slid 3.3 percent to 203 yen.

Steelmakers Tumble

The Nikkei newspaper reported, without saying where it got the information, that Japanese steelmakers may have to increase spending on raw materials by more than 50 billion yen ($590 million) for the January-to-March period from the current quarter because of rising prices of iron ore and coking coal.

Nintendo Co., the world’s biggest maker of portable video- game machines, was the biggest support for the Topix. The stock jumped 3.4 percent to 22,730 yen, the most since Aug. 18. Nintendo said it sold more Wii game consoles in the U.S. in the week including “Black Friday,” the Friday following the Thanksgiving holiday, so named because that’s when many U.S. retailers become profitable.

Rating cuts at Credit Suisse dragged down a group of banks in the Topix by the most since Oct. 15. Shinichi Ina, an analyst at the brokerage, lowered his recommendations on Mitsubishi UFJ, Mizuho Financial Group Inc., Sumitomo Trust & Banking Co. and Chuo Mitsui Trust Holdings Inc. to “neutral” from “outperform.”

Mitsubishi UFJ slid 2.2 percent to 396 yen. Mizuho fell 1.5 percent to 133 yen. Sumitomo Trust retreated 2.8 percent to 444 yen. Chuo Mitsui dropped 2.3 percent to 295 yen.

To contact the reporter on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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