Nikkei 225 Drops Most in Six Weeks on China Concern, Greek Debt-Rating Cut

Japan’s Nikkei 225 (NKY) Stock Average declined the most in six weeks as makers of construction equipment declined after Nomura Holdings Inc. said demand in China will cool and Fitch Ratings cut Greece’s credit rating.

Komatsu Ltd. (6301), the world’s second-largest maker of construction machinery, retreated 5.9 percent after Nomura cut its estimate for sales in China and a report showed manufacturing growth in Japan’s No. 1 export market is slowing. Canon Inc. (7751), a camera maker that gets more than 30 percent of its sales in Europe, lost 1 percent. Tokyo Electric Power Co. slumped 9 percent after the utility reported the biggest loss among the country’s nonfinancial companies.

The Nikkei 225 dropped 1.5 percent to 9,460.63 at the 3 p.m. close in Tokyo, the most since April 12. The broader Topix index declined 1.2 percent to 817.68, with more than three times as many stocks falling as rising.

“There’s concern China’s economy will slow,” said Yasuhiko Hirakawa, a fund manager at Tokyo-based DIAM, which manages the equivalent of $55 billion. “Even if manufacturing recovers, it’s doubtful that demand will also recover.”

The Topix has lost 12 percent since the magnitude-9 earthquake and tsunami on March 11 that devastated Japan’s northeast coast, crippling four of Tokyo Electric’s nuclear reactors and disrupting supply chains at companies from Toyota Motor Corp. to chipmaker Renesas Electric Corp. Shares in the gauge traded today at 0.93 times estimated book value, compared with 2.12 for the Standard & Poor’s 500 Index.

Machinery Makers Drop

Construction-machinery makers dropped after Nomura cut its estimate for equipment sales in China by 20 percent for the year ending March 2012, citing measures by authorities to rein in inflation. In addition to raising interest rates, The People’s Bank of China has lifted reserve requirement ratios for major banks eight times since mid-November to curb lending in an economy where price gains exceed a government target of 4 percent.

Komatsu plunged 5.9 percent to 2,381 yen and was the most- actively traded stock in Japan. Hitachi Construction Machinery Co. declined 6 percent to 1,676 yen. Kobe Steel Ltd. (5406) dropped 3.8 percent to 176 yen. Kawasaki Heavy Industries Ltd. (7012) lost 4.9 percent to 291 yen.

Nomura cut its share-price estimate on Komatsu by 11 percent and lowered its rating on companies including Hitachi Construction, Kobe Steel, and Kawasaki Heavy.

China Manufacturing

“Price stability will continue to outweigh growth as Beijing’s top priority in the coming months,” said Qu Hongbin, a Hong Kong-based economist at HSBC Holdings Plc. “ Beijing’s policy focus is still directed at taming inflation.”

Japanese shares extended early declines after a report compiled by HSBC and Markit Economics showed a measure for manufacturing in China fell to its lowest level in 10 months. The preliminary purchasing managers’ index dropped to 51.1 in May from a final reading of 51.8 in April. A reading above 50 still indicates expansion.

Fanuc Corp. (6954), an industrial-robot maker that gets about half of its sales from China, lost 4.1 percent to 12,300 yen and was the heaviest drag on the Nikkei.

Shares also dropped after Fitch on May 20 lowered Greece’s long-term debt rating to B+, four notches below investment grade, and said even a voluntary extension of Greek bond maturities would be “a default event.” The rating service said Greece could also face a further reduction in its creditworthiness.

Greek Debt

“Greece’s debt restructuring is ready to start at any time,” said Takero Inaizumi, head of equity research in Tokyo at Mizuho Investors Securities Co. “There’s concern that will affect exports negatively.”

Canon, the world’s biggest maker of cameras, fell 1 percent to 3,660 yen. Honda Motor Co., an automaker that gets more than 80 percent of its sales outside Japan, dropped 1.1 percent to 3,030 yen.

The yen appreciated to 115.08 against the euro, the strongest level since May 16, compared with 117.13 at the close of stock trading in Tokyo on May 20. A stronger yen reduces income at Japanese companies when overseas revenue is converted into their home currency.

Tokyo Electric plunged 9 percent to 334 yen, the most on the Nikkei. The company reported a full-year net loss of 1.25 trillion yen ($15.3 billion) following the accident at its Fukushima Dai-Ichi nuclear power plant.

The utility, Japan’s largest, booked a 1.1 trillion yen charge for the nuclear crisis and plans to raise 600 billion by selling assets. Tokyo Electric also said it will decommission four reactors at its stricken plant, and suspended plans to build two additional reactors.

To contact the reporters 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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