Nikkei ends low on Europe debt worry

The euro dived to a 10-year nadir against the yen on Monday,adding to pressure on exporters' shares.

The Nikkei average skidded more than 2 per cent on Monday to a fresh 2-1/2 year closing low on concerns that Europe’s sovereign debt woes and falls in US share prices will deepen.

Senior politicians in German Chancellor Angela Merkel’s centre-right coalition have started talking openly about the possibility of a Greek default,raising concerns among investors already spooked by the surprise resignation of a European Central Bank board member last week.

It’s Europe’s turn to be in focus,but fears about the US economy haven’t gone away,and until other parts of the world stabilise we will continue to see investors taking money out of stocks here and not putting it back in,said Fumiyuki Nakanishi,a strategist at SMBC Friend Securities.

US stock futures also fell,raising fears that US stocks will continue dropping after they tumbled more than 2 per cent on Friday on concern whether the euro zone will be able to get its debt crisis under control.

The euro dived to a 10-year nadir against the yen on Monday,adding to pressure on exporters’ shares.

If the euro stays weak it will add further pressure to Japanese shares as companies with euro zone exposure begin revising down their earnings forecasts,said Yutaka Shiraki,a senior strategist at Mitsubishi UFJ Morgan Stanley Securities

S&P 500 E-mini futures were last down 16.00 points or 1.4 per cent at 1,142.00.

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The benchmark Nikkei fell 2.3 per cent to 8,535.67,its lowest close since 8,493.77 marked on April 28,2009.

The broader Topix index shed 1.9 per cent to 741.26.

The Nikkei’s next downside target is the intraday low of 8,227.63 hit on March 15,when stocks were sold off after the March 11 earthquake and tsunami. Ahead of that,traders cited support around 8,500.

Also supporting the Nikkei were hopes that Japan’s central bank would buy assets through its liquidity-boosting programme,as it typically has done on days of steep stock losses.

During three days of Nikkei declines starting on Sept. 2,the Bank of Japan bought exchange-traded funds worth 66.9 billion yen ($860 million),as well as 1.7 billion yen of REITs on Sept 9.

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Investors are also awaiting the US central bank’s policy-setting Federal Open Market Committee meeting on Sept. 20-21 to see if it will adopt further accommodative steps to stimulate the US economy,analysts said.

But some strategists said that if any upcoming US economic reports such as retail sales data,industrial production figures and the consumer price index are better than expected,it could have a negative effect on market sentiment,as it would lower expectations for more easing steps.

Suzuki Motor Corp closed 2.8 per cent lower at 1,484 yen,having sunk to a year low of 1,468 yen,after it said it plans to end its capital and business alliance with Volkswagen,and that it will ask Volkswagen to sell its stake in Suzuki.

Shares in Sharp Corp fell 5.0 per cent to 585 yen after an analyst at Mizuho Securities cut his fair value estimate on the stock to 630 yen from 750 yen.

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Honda Motor Co lost 3.8 per cent to 2,259 yen after the car maker said it was recalling almost 347,000 Pilot sport utility vehicles worldwide due to a potential problem with their front seat belts.

Volume was thin,with 1.69 billion shares changing hands on the Tokyo Stock Exchange’s main board,below last week’s average of 1.82 billion shares. Declining shares outnumbered gainers by 1,451 to 152.