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Nikkei Caps Biggest Monthly Loss in Two Years on Greece

Japan stocks fell, with the Nikkei 225 (NKY) Stock Average capping its biggest monthly drop in two years, as concern mounted on Greece’s possible exit from the euro and as the yen extended gains, dimming the outlook for exporters.

Canon Inc. (7751), a camera maker that gets 31 percent of its revenue in Europe, fell 3.5 percent. Hitachi Construction Machinery Co. (6305) dropped 2 percent on a report Japan’s industrial output rose less than expected. Kansai Electric Power Co., Japan’s second-biggest electricity provider, gained 3.2 percent on a report that government may approve the restart of two of the company’s nuclear reactors next week.

The Nikkei 225 fell 1.1 percent to 8,542.73 at the 3 p.m. close of trading in Tokyo, capping a 10.3 percent decline this month, the biggest monthly decline since May 2010. Trading volume was 32 percent above the 30-day average. The broader Topix index slid 0.6 percent to 719.49, sliding 0.4 percent on the week for a nine-week loss, the longest such streak since September 1975.

“We just don’t know what will happen with Greece as different polls are coming out one after another, showing mixed signals,” said Isao Kubo, a Tokyo-based equity strategist at Nissay Asset Management Corp., which oversees about $63.5 billion. “Overseas factors and the rising yen are causing a sell-off.”

The Topix has fallen 18 percent since this year’s high on March 27 as voter opposition to austerity measures in Europe raised concern the debt crisis is worsening and as growth in China slowed. The gauge is nearing a 20 percent drop from this year’s peak, which to investors signals the beginning of a bear market. The declines have cut the value of shares on the Topix to 0.84 times book value, the lowest since March 2009.

U.S. Housing Data

Futures on the Standard & Poor’s 500 Index (SPXL1) rose 0.2 percent today. The gauge lost 1.4 percent in New York yesterday after a report showed the number of contracts to buy previously owned U.S. homes fell in April by the most in a year.

Stocks also fell as an opinion poll showed most Greeks want to negotiate the terms of a financial rescue, stoking fears the nation may default and be forced to exit the euro. The nation is scheduled to have another election on June 17 after an inconclusive ballot this month. Separately, the European Central Bank denied it has rejected a plan by the Spanish government to recapitalize the struggling Bankia group.

“The market is genuinely worried about the potential disorderly default and exit by Greece and what that means in terms of contagion risks,” said Prasad Patkar, who helps manage about $1 billion at Platypus Asset Management Ltd. in Sydney. “It will have to be a response by governments and the central bank to stem the panic in the market.”

Yen Rises

Shares of major Japanese exporters also fell as the yen reached a three-month high against the dollar and a four-month high against the euro. A stronger Japanese currency cuts the competitiveness of the exporters abroad.

Canon lost 3.5 percent to 3,150 yen. Toyota Motor Corp. (7203), Asia’s biggest carmaker by market value, fell 1.1 percent to 3,040 yen.

Short selling of Japanese stocks surged as investors hedged against the financial fallout should Greece be forced out of the euro. Short selling accounted for 32 percent of the total value of shares traded yesterday in Japan, the most since June 3, according to the Tokyo Stock Exchange. A short position is a bet that an asset will fall.

Machinery makers declined after a government report today showed Japan’s industrial production rose 0.2 percent in April, missing a 0.5 percent increase forecast by economists.

Hitachi Construction fell 2 percent to 1,512 yen. Komatsu Ltd. (6301), Japan’s largest construction machinery maker, dropped 2.6 percent to 1,878 yen. Fanuc Corp. (6954), Japan’s biggest maker of factory robots, declined 1.4 percent to 13,520 yen.

Nuclear Restart Weighed

Kansai Electric gained 3.2 percent to 1,134 yen after a report that the government may next week approve restarting two reactors at the utility’s Ohi nuclear plant, according to the Nikkei newspaper, which didn’t cite a source for the information. The nation’s nuclear power stations have all been shut following the Fukushima disaster last year.

Chubu Electric Power Co. gained 6.4 percent to 1,198 yen, while Shikoku Electric Power Co. added 5.8 percent to 1,840 yen.

Among other stocks that fell, Pasona Group Inc. (2168), a provider of placement and staffing services, slumped 11 percent to 55,100 yen after reporting a preliminary loss of 50 million yen ($634,437) after writing down assets. It had earlier forecast 650 million yen in profit. The stock declined the most on the 1,674-member Topix.

The Nikkei 225 Volatility Index (VNKY) rose 6.7 percent to 26.27, indicating traders expect a swing of about 7.5 percent on the benchmark gauge over the next 30 days.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

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