Japan Stocks Fall as Optimism Fades on Spain Bank Bailout

 Japanese stocks fell as surging bond yields stoked concern a bailout of Spain’s banks won’t ease Europe’s debt crisis. Shares pared losses as the yen halted gains after the International Monetary Fund said the currency is overvalued and urged further monetary easing.

Nippon Sheet Glass Co., which gets 39 percent of its sales in Europe, lost 3.6 percent after sliding as much as 6 percent. Mitsubishi UFJ Financial Group Inc., Japan’s largest-listed lender, led banks lower. JFE Holdings Inc. paced losses among steelmakers after China’s Baoshan Iron & Steel Co. cut prices amid slumping demand. Nissei Build Kogyo Co. surged 9.8 percent after the homebuilder announced a share buyback.

The Nikkei 225 Stock Average dropped 1 percent to 8,536.72 at the 3 p.m. trading close in Tokyo after falling as much as 2 percent. It rose 2 percent yesterday, the biggest gain since April 18. The broader Topix Index lost 0.8 percent to 724.37 today, with 28 of its 33 industry groups declining.

“Today, the market is choosing to see things are worse than expected about Spain, causing a sell-off,” said Akihiro Tsunoda, a senior investment manager at Sompo Japan Nipponkoa Asset Management Co., which manages about $63 billion in assets. “Officials are saying the same things about Spain, but it’s just that the market’s view is changing. This is an issue about market sentiment rather than a political one.”

The Topix fell 17 percent from this year’s high on March 27 as China’s economic growth slowed and European policy makers failed to stem concern about the debt crisis. Spain has followed Greece, Ireland and Portugal in seeking a bailout and investors are awaiting the outcome of a Greek election on June 17, which may determine whether the nation will exit the euro.

Stocks fell after 10-year yields on Spanish government debt surged to 6.51 percent and comparable Italian bonds jumped to 6.03 percent yesterday.

‘Demanding More’

“It used to be after one of these bailouts you’d get a month worth of good reaction, now $100 billion buys you 24 hours,” said Andrew Pease, Sydney-based chief investment strategist at Russell Investment Group, which manages about $150 billion. “The bond market is now demanding more integration and the focus is coming back to growth. Nobody is looking to go back into risk-on positions until they see how Greece plays out.”

Nippon Sheet Glass lost 3.6 percent to 80 yen. Makita Corp., a power-tools maker that depends on Europe for 42 percent of its sales, lost 2.3 percent to 2,785 yen.

Banks accounted for about 12 percent of the Topix’s decline. Mitsubishi UFJ dropped 1.1 percent to 347 yen. Mizuho Financial Group Inc., Japan’s third-largest bank by market value, slid 1.7 percent to 119 yen.

Steelmakers Slide

Steel manufacturers slid after Baoshan Iron & Steel, China’s biggest publicly traded steelmaker, cut prices as demand from makers of appliances and cars slowed. JFE Holdings, Japan’s second-biggest steelmaker by market value, dropped 1.7 percent to 1,269 yen. Nippon Steel Corp., the sector leader, fell 2.9 percent to 167 yen.

Shares pared losses as the yen halted gains against most of its major counterparts after the International Monetary Fund said the currency was overvalued. The remarks came as lawmakers are increasing pressure on the Bank of Japan to ease policy further to support the nation’s export-driven economy.

Japan’s government nominated economists to the central bank’s board who previously signaled support for stimulus. Prime Minister Yoshihiko Noda yesterday tapped Takahide Kiuchi of Nomura Securities Co. and Takehiro Sato of Morgan Stanley MUFG Securities Co. The central bank is scheduled to end a two-day policy meeting on June 15.

Futures on the Standard & Poor’s 500 Index added 0.5 percent today. The gauge fell 1.3 percent yesterday in New York.

The Nikkei 225 Volatility Index advanced 6.1 percent to 27.82, indicating traders expect a swing of about 8 percent on the benchmark gauge over the next 30 days. Trading volume was 14 percent below the 30-day average. Shares on the measure are valued at 1.08 times book value.

Among stocks that rose, Nissei Build Kogyo jumped 9.8 percent to 123 yen after saying it will buy back as much as 5.7 percent of its shares for up to 500 million yen ($6.3 million).

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