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Japan Stocks Fall on Concern China Will Raise Rates, Damp Demand

Japanese stocks declined, sending the Nikkei 225 Stock Average to its first weekly drop in four, as exporters fell on speculation China will raise interest rates, crimping demand in Japan’s biggest overseas market.

Fanuc Corp., a maker of factory robots which gets about 40 percent of its sales from China, lost 1.1 percent. TDK Corp., an electronics manufacturer that counts the market as its largest, sank 1.1 percent. Toyota Motor Corp. dropped 0.9 percent after a report the world’s biggest automaker will delay forecasting earnings amid earthquake damage and disruption of parts supplies.

The Nikkei fell 0.7 percent to 9,591.52 at the 3 p.m. close in Tokyo, extending declines after China reported faster-than-forecast economic growth and the highest inflation since 2008. The broader Topix, which slid 0.6 percent to 841.29, also dropped after China showed signs of overheating.

“There could be some concerns on the rate hike,” said Benjamin Tam, a portfolio manager at IG Investment Ltd. in Hong Kong, which oversees about $2 billion. The Chinese government “may step up tightening measures in the second quarter.”

For the week, the Nikkei lost 1.8 percent while the Topix dropped 1.4 percent amid signs that supply chain disruptions stemming from the March 11 quake and tsunami are likely to persist, hurting earnings at Japanese companies.

Taming Inflation

Fanuc dropped 1.1 percent to 13,150 yen and was the heaviest single drag on the Nikkei, while TDK fell 1.1 percent to 4,470 yen. Komatsu Ltd., a maker of earth movers which gets about 20 percent of its sales in China, retreated 1.5 percent to 2,785 yen.

China’s inflation accelerated in March to the fastest pace since 2008, and the country’s economy grew a more-than-estimated 9.7 percent in the first quarter, the statistics bureau said at a briefing in Beijing today. Consumer prices rose 5.4 percent from a year earlier. The median forecasts in Bloomberg News surveys of economists were for inflation of 5.2 percent and growth of 9.4 percent.

Taming prices is an “urgent” priority, China’s Cabinet said after meeting in Beijing this week. Officials aim to hold inflation at 4 percent for the full year, a goal that may push China’s central bank to boost reserve requirements for lenders to drain cash from the world’s fastest-growing major economy, according to Credit Agricole CIB and Australia & New Zealand Banking Group.

Broken Supply Chains

The Topix and the Nikkei have been the worst performers among the world’s major equity indexes since March 10, the day before an earthquake and tsunami devastated Japan’s northeast coast and crippled a nuclear power plant. The Topix has lost 9.6 percent while the Nikkei dropped 8.1 percent.

Toyota fell 0.9 percent to 3,240 yen. The automaker won’t forecast earnings for fiscal 2011 when it reports results for the 12 months ended March 31, the Nikkei newspaper said today. Disruptions at parts suppliers in the wake of last month’s disaster have made it difficult for the automaker to formulate production and sales plans, the newspaper said.

“That fact that not even Toyota knows the current situation suggests damage to the supply chain is deep-rooted,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “That’s negative for the market.”

‘Deep-Rooted’ Damage

Semiconductor equipment makers retreated after Bank of America Corp.’s Merrill Lynch cut their ratings, forecasting lower orders from chip companies struggling with supply shortages. Tokyo Electron Ltd., Japan’s biggest producer of chipmaking gear, declined 2.8 percent to 4,385 yen. Disco Corp., which manufactures tools for cutting silicon wafers, tumbled 4.7 percent to 5,290 yen.

Developers and construction companies declined after Nomura Holdings Inc. said consumers may be reluctant to buy homes after the quake. Mitsubishi Estate Co., the country’s biggest developer by market value, lost 0.7 percent to 1,382 yen. Mitsui Fudosan Co., Japan’s second-largest real-estate company, fell 1.7 percent to 1,354 yen.

Sumitomo Metal Industries Ltd., Japan’s third-largest steelmaker, sank 1.1 percent to 173 yen after saying it will take a charge of 60 billion yen ($718 million) for the year ended March 31 on losses stemming from the earthquake.

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