Japanese Stocks Decline as Eurozone Economy Contracts

Japanese stocks slid, with the Topix (TPX) Index falling for the first time in three days, after the euro-area economy contracted in the second quarter. Declines were limited as U.S. retail sales rose more than estimated.

Nippon Sheet Glass Co. (5202), which gets about 40 percent of its sales in Europe, fell 1.7 percent. Kobe Steel Ltd. led the sector lower after an official at the world’s biggest ore producer said China’s golden years of growth are over. Sharp Corp., Japan’s top maker of liquid-crystal panels, sank 12 percent on a Nikkei newspaper report the company is trimming its sales forecast and after Deutsche Bank AG rated the stock a sell.

“Investors are being cautious about the European economy,” said Seiji Iwama, a fund manager at Daiwa SB Investments Ltd., which oversees about 5 trillion yen ($63.5 billion). “The markets view the U.S. economy as becoming more solid because the data wasn’t as bad as people expected. When trading volume is light, investors tend to buy or sell shares based on a company’s individual factors.”

The Nikkei 225 Stock Average (NKY) slid 0.1 percent to 8,925.04 at the 3 p.m. close in Tokyo after rising as much as 0.3 percent earlier. Volume on the gauge was more than 10 percent below the 30-day average with many investors off for O-bon holidays this week. The broader Topix slid 0.3 percent to 747.32 today, with about three shares falling for every two shares that gained.

The Topix has fallen 14 percent from this year’s peak on March 27 on concern earnings will be hurt by Europe’s debt crisis and slower growth in China and the U.S. The decline has cut the price of shares on the gauge to 0.9 times book value, compared with 2.2 for the Standard & Poor’s 500 Index and 1.4 for the Europe Stoxx 600 Index. A number less than one means companies can be bought for less than the value of their assets.

Euro GDP

Shares fell on a report the euro-area economy contracted in the second quarter after the worsening debt crisis and austerity cuts forced at least six nations into recession. GDP in the 17-nation currency bloc fell 0.2 percent from the first quarter, the European Union’s statistics office in Luxembourg said yesterday.

Nippon Sheet fell 1.7 percent to 57 yen. Konica Minolta Holdings Inc. (4902), an office-equipment maker that gets almost 30 percent of its sales from Europe, lost 2.2 percent to 569 yen.

Futures on the S&P 500 (SPXL1) fell 0.1 percent today. The gauge was little changed yesterday as a slump in technology and financial shares reversed an earlier rally as U.S. retail sales climbed more than forecast in July on a consumer-spending rebound.

U.S. Retail

The 0.8 percent retail advance, the first gain in four months, followed a revised 0.7 percent drop in June, Commerce Department figures showed. Economists projected a 0.3 percent increase, according to the median forecast in a Bloomberg survey.

Honda Motor Co. (7267), a carmaker that gets almost 45 percent of its sales from North America, added 0.4 percent to 2,526 yen. The shares also rose after the Nikkei newspaper reported Japan will offer subsidies for ultra-compact cars.

The U.S. economic data “will temporarily weaken the expectations for additional easing and is alleviating concerns of the yen’s strength against the dollar, which is good for exporters,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc.

The yen depreciated to as low as 78.90 against the dollar today in Tokyo, compared with 78.45 at the close of stock trading, and weakened to 97.24 against the euro from 96.96. A weaker yen boosts the value of overseas income at Japanese companies when repatriated.

Just 29 of the Topix’s 1,672 companies are scheduled to release earnings during this O-bon festival week. Of the 331 companies that have reported quarterly results since July 1, and for which Bloomberg has estimates, 52 percent have missed expectations.

Steel Makers

Steel makers were the biggest decliners on the Topix’s 33 industry groups after an official at Vale SA said China’s growth is slowing. Nippon Steel Corp., Japan’s largest steelmaker, lost 2.4 percent to 163 yen. Kobe Steel Ltd. (5406) tumbled 5.7 percent to 66 yen, the second-biggest drop in the Nikkei 225, after its stock price estimate was lowered to 75 yen from 100 yen by BNP Paribas SA.

Sharp lost the most on the Nikkei 225, falling 12 percent to 169 yen, after it said sales for liquid-crystal display televisions will fall 35 percent, citing the end of government’s eco-point program for a slump in demand. The electronics maker had earlier forecast a 19 percent drop in sales. Deutsche Bank AG cut the electronics maker’s equity rating to sell from hold.

-- With assistance from Masaaki Iwamoto in Tokyo. Editor: Jim Powell

To contact the reporter on this story: 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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