Topix Falls to Two-Year Low on Concern Global Growth May Slow, Europe Debt

Japanese stocks fell for a third day, sending the Topix index to its lowest closing level in more than two years, on deepening concern the global economy is slowing and Europe’s debt crisis will damage the banking system.

Honda Motor Co., a carmaker that gets more than 80 percent of its revenue abroad, declined 3.3 percent after Goldman Sachs Group Inc. lowered its rating on Japanese automakers because of slower U.S. economic growth. Canon Inc. (7751), the world’s biggest camera maker, lost 2.4 percent. Mitsubishi Corp. (8058), Japan’s No. 1 commodities trader, slid 3 percent after oil and metals prices slipped.

The Nikkei 225 Stock Average fell 2.5 percent to 8,719.24 at the 3 p.m. close in Tokyo. The broader Topix index declined 2 percent to 751.69, the lowest close since March 2009. More than five stocks retreated for each that rose. For the week, the Nikkei has lost 2.7 percent while the Topix is down 2.2 percent.

“A sense of caution about slowdown in the global economy is significantly increasing and the market is pricing in risk of the slowdown in a rapid pace,” said Junichi Misawa, head of equity investment at Tokyo-based STB Asset Management Co. in Tokyo.

U.S. Rating Cut

Japanese stocks fell this month as Standard & Poor’s on Aug. 5 cut its sovereign rating on the U.S. by one level to AA+, citing the failure of policy makers to meet the need to reduce swelling debt in the world’s biggest economy.

“There’s a total lack of confidence in policy makers’ ability to defuse the situation,” said Nader Naeimi, a Sydney- based strategist for AMP Capital Investors Ltd., which manages almost $100 billion. “Fear is breeding fear now.”

Declines in Japanese shares reduced the average price of stocks in the Topix to 0.9 times book value. A level below 1 indicates a company’s assets are worth more than its market value.

Futures on the Standard & Poor’s 500 Index slid 0.9 percent today. In New York, the index tumbled 4.5 percent to 1,140.65 yesterday on concern the global economy is slowing and speculation that European banks lack enough capital. The Stoxx Europe 600 Index plunged 4.8 percent in London yesterday, the biggest drop since March 2009.

U.S. Employment

A report showed the Federal Reserve Bank of Philadelphia’s general economic index plunged to minus 30.7 this month, the lowest reading since March 2009, from 3.2 in July. The August gauge exceeded the most pessimistic projection in a Bloomberg News survey in which the median estimate was for a reading of 2. Readings less than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

Government data also showed more Americans than forecast filed applications for unemployment benefits last week, while the cost of living climbed in July by the most in four months. Separately, the National Association of Realtors said U.S. sales of previously owned homes unexpectedly dropped in July, reflecting an increase in contract cancellations due to strict lending rules and low appraisals.

Slowing Economy

“Economic indicators showed the economy is slowing and some people have even started to worry about a recession in the U.S.,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo.

Companies that rely on overseas sales declined. Honda dropped 3.3 percent to 2,403 yen. Toyota Motor Corp. (7203), the world’s largest carmaker, declined 1.4 percent to 2,768 yen. Canon lost 2.4 percent to 3,465 yen.

The U.S. economy may grow less than previously forecast in 2011 and 2012 due to potential “political paralysis” and fiscal tightening steps, Citigroup Inc. wrote in a report.

The brokerage cut its 2011 gross domestic product growth forecast to 1.6 percent from 1.7 percent and lowered its 2012 GDP growth estimate to 2.1 percent from 2.7 percent, Steven Wieting and Shawn Snyder, analysts at Citigroup, wrote in a report dated yesterday.

Carmakers Drop

Carmakers declined after Goldman Sachs cut its coverage view on Japan’s auto sector to “neutral” from “attractive,” citing slower U.S. growth and protracted yen strength. Nissan Motor Co. slumped 4.4 percent to 653 yen. Isuzu Motors Ltd. (7202) tumbled 6.2 percent to 320 yen.

The yen appreciated to 76.45 against the dollar, compared with 76.65 at the close of stock trading in Tokyo yesterday. Against the euro, Japan’s currency strengthened to 109.33 from 110.46. A stronger yen hurts Japanese exporters because it cuts the value of overseas sales.

Mitsubishi lost 3 percent to 1,773 yen. Mitsui & Co., Japan’s second-largest trader, dropped 2.4 percent to 1,268 yen. Inpex Corp. (1605), Japan’s biggest energy exploration company, slid 4.7 percent to 475,000 yen.

Commodities declined on concern slower economic growth will weaken demand for raw materials. Crude oil for September delivery plunged 5.9 percent to settle at $82.38 a barrel in New York yesterday. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum retreated 2.4 percent.

Gree Inc. (3632), an operator of a social-networking website, tumbled 6.4 percent to 2,290 yen and was the most actively traded stock by value in Japan. Goldman Sachs cut its investment rating on the online company to “neutral” from “buy.” Goldman also removed Gree from its “conviction buy list,” citing recent rises in the stock price, according to a Japanese- language report dated Aug. 18.

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

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

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