Japan Stocks Falls on Signs of Slowdown, Italian Yields

Japanese stocks fell, reversing yesterday’s advance, as U.S. and European data added to concern the global economy is slowing and after borrowing costs climbed in Italy ahead of a Greek election this weekend that may determine the nation’s future in the monetary union.

Toyota Motor Corp. (7203), which gets 21 percent of its sales in North America, fell 1.2 percent. Nippon Sheet Glass Co. (5202), which depends on Europe for 39 percent of its revenue, fell 1.3 percent. Tsugami Corp. slumped 5.9 percent after Citigroup Inc. said order growth is declining for the maker of automated machine tools.

The Nikkei 225 Stock Average (NKY) dropped 0.2 percent to 8,568.8 at the 3 p.m. trading close in Tokyo. The broader Topix (TPX) Index lost 0.1 percent to 725.66, fluctuating between gains and losses over the past five trading days. Volume on the index was 31 percent below the 100-day average before Greek polls on June 17.

“Europe is sliding further into a recession and the global and U.S. economies are still slowing down, and so I think this is a soft patch,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “It’s still the time for caution on the short-term view. There’s a lot of event risk around.”

The Topix fell 17 percent from this year’s high on March 27 as China’s economic growth slowed and on concern Europe’s debt crisis is spreading. Shares on the index are valued at 0.86 times book value, near levels seen in 2008 after the collapse of Lehman Brothers Holdings Inc. A number below one means investors can buy a company for less than the value of its assets.

Low Turnover

The value of shares traded on the first section of the Tokyo Stock Exchange was 860 billion yen ($10.8 billion) today, about two-thirds of this year’s daily average of 1.13 trillion yen.

Futures on the Standard & Poor’s 500 Index added 0.3 percent today. The gauge fell 0.7 percent yesterday in New York after a Commerce Department report showed U.S. retail sales fell in May for a second month. Weaker economic data adds pressure on the Federal Reserve to take further steps to spur growth, and a policy-setting meeting is scheduled June 19-20.

Toyota fell 1.2 percent to 3,015 yen. Canon Inc., the world’s biggest camera maker, slid 0.2 percent to 3,210 yen.

Shares also fell today as euro-area industrial production slid for a second month in April, the European Union’s statistics office said yesterday.

“Everyone knows the risks associated with the economies in Europe,” said Cameron Peacock, a Melbourne-based analyst at IG Markets Ltd., a provider of trading services for stocks, bonds and currencies. “Ahead of the weekend’s election in Greece, no one wants to be on the wrong side of the bet and take on risk.”

Italian Bonds

Ten-year yields on Italian government bonds rose to the highest since Jan. 25. Spain’s credit rating was downgraded three steps to Baa3 from A3 by Moody’s Investors Service, citing the nation’s increased debt burden, weakening economy and limited access to capital markets.

Nippon Sheet Glass lost 1.3 percent to 78 yen. Shimano Inc., a manufacturer of bicycle parts that counts Europe as its biggest market, dropped 1.3 percent to 4,865 yen.

European yields are rising as Spain seeks a banking rescue of as much as 100 billion euros ($126 billion), following Greece, Ireland and Portugal in taking bailouts.

“Obviously, the Spanish bank bailout on the weekend didn’t help matters and probably increased the focus on Italy,” AMP Capital’s Oliver said. “It’s also made investors worry about investing in Spanish bonds.”

The Nikkei 225 Volatility Index (VNKY) rose 4 percent to 27.73, indicating traders expect a swing of about 8 percent on the benchmark gauge over the next 30 days.

Tsugami slumped 5.9 percent to 515 yen after Citigroup Inc. said in a report growth in the firm’s machine tool orders has declined since peaking in March.

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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