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Nikkei Falls on Record Spain Bond Yields, Greek Elections

June 19 (Bloomberg) -- Japan’s Nikkei 225 Stock Average (NKY) fell from a one-month high after borrowing costs in Spain surged to a euro-area record and optimism faded that Greece’s election of pro-bailout parties will help calm the debt crisis.

Canon Inc. (7751), a camera maker that gets 31 percent of its revenue in Europe, declined 1.2 percent. Nomura Holdings Inc. (8604) fell 1.8 percent after Reuters reported the brokerage was not selected to help manage a state sale of Japan Tobacco Inc. shares. JX Holdings Inc. gained 1.3 percent on a government plan to outsource gas and crude drilling to the refiner’s unit.

The Nikkei 225 dropped 0.8 percent to 8,655.87 at the 3 p.m. close in Tokyo after yesterday rising 1.8 percent to the highest since May 22. The broader Topix Index slid 0.6 percent to 734.69 today as the Group of 20 nation meet in Mexico to announce contributions to the International Monetary Fund’s financial firewall, and as the U.S. Federal Reserve starts a two-day meeting.

“The market won’t be optimistic unless policy makers produce a big surprise,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo, which oversees about 15 trillion yen ($190 billion). “There’s no reason for investors to buy, judging from the yen’s level and current macro conditions.”

The Topix has fallen 16 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 0.87 times book value, near levels seen after the 2008 collapse of Lehman Brothers Holdings Inc. A number below one means a company can be bought for less than the value of its assets.

Europe Risk

Shares extended declines after Bank of Japan Governor Masaaki Shirakawa told lawmakers the European crisis was the biggest risk for Japan. Stocks also slipped after the Cabinet Office said Japan’s leading indicator, the broadest gauge of future economic activity, fell to 95.6 percent in April from 96.6 percent the previous month.

Volume on the Nikkei 225 was 23 percent below the 30-day average. The value of shares traded on the first section of the Tokyo Stock Exchange was about 30 percent less than this year’s daily average of 1.16 trillion yen.

“Even a slight concern drives investors to sell shares because buying energy is very small in the market now,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo.

A measure of volatility on the Nikkei 225 has fallen 20 percent over the past two days, the biggest decline since the record earthquake in March 2011.

Futures on the Standard & Poor’s 500 Index slid 0.1 percent today. The gauge advanced just 0.1 percent yesterday as 10-year Spanish bond yields soared to 7.16 percent, the highest since 1997, tempering optimism about Greece’s attempts to form a coalition government.

Bad Debt

Spain, which has asked euro-region governments for as much as 100 billion euros ($126 billion) to shore up its banks, reported a jump in bad loans in April to 8.72 percent of total lending, the highest since 1994.

“The election of pro-bailout parties in Greece means they’ve cleared a first hurdle, but there’s no fundamental solution here,” said Tamiji Shinada, executive director of investment research at Nomura Securities Co. in Tokyo. “Unless you think we’re headed for another credit freeze like the one we had after the Lehman shock, shares are cheap. That’s providing some support to the market.”

Canon lost 1.2 percent to 3,200 yen. Ricoh Co. (7752), an office- equipment and camera maker that gets more than 20 percent of its revenue in Europe, slipped 1.5 percent to 640 yen.

G-20 Meeting

Additional contributions to the IMF financial firewall from major emerging-market nations will be similar to the amount announced in April, when the Washington-based lender said it received total pledges of $430 billion from members, Brazil’s Finance Minister Guido Mantega said. Other countries including Brazil, Russia, India and China agreed to contribute about $70 billion to that total without detailing their pledges.

Fed policy makers will begin a two-day meeting today to contend with financial stress in Europe and a U.S. unemployment rate that has remained above 8 percent for 40 consecutive months. They are also expected to lower forecasts for growth.

Nomura fell 1.8 percent to 273 yen after Reuters reported the Ministry of Finance left Japan’s biggest brokerage off the list of companies selected to manage the government’s sale of about $6 billion of Japan Tobacco shares.

JX Holdings gained 1.3 percent to 390 yen. The trade and industry ministry said it plans to outsource trial drilling for natural gas and crude off the coast of Niigata prefecture to a unit of JX.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net.

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

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