Japan Stocks Fall, Snap 3-Day Rally, on Overseas Sales Concern

By Masaki Kondo

July 25 (Bloomberg) -- Japan's stocks dropped, snapping a three-day rally, on concern the nation's export market will shrink after U.S. home sales fell to the lowest in a decade and Canon Inc. reported a decline in profit on slowing overseas sales.

Canon, the world's biggest digital-camera maker, sank the most in 10 days after slumping sales in the Americas and the stronger yen drove down profit for a third-straight quarter. Mazda Motor Corp., which exports 80 percent of domestic production, headed for the sharpest dive in more than a month.

``Uncertainty is clouding the outlook for the global economy,'' Soichiro Monji, chief strategist at Daiwa SB Investments Ltd., said in an interview with Bloomberg Television. ``Though some companies are faring relatively well, we can't deny the economy is still slowing.''

The Nikkei 225 Stock Average declined 192.57, or 1.4 percent, to 13,410.74 as of 9:35 a.m. in Tokyo, halting its longest winning streak since June 2. The broader Topix index fell 20.71, or 1.6 percent, to 1,311.86. The Nikkei was headed for a 4.7 percent gain for this holiday-shortened week, the biggest weekly advance since Nov. 30.

Sales of previously owned U.S. homes declined more than economists had estimated in June, according to a report by the National Association of Realtors yesterday. Falling home prices will force financial companies to write down $1 trillion from their balance sheets, Bill Gross, who manages the world's biggest bond fund, said the same day.

Meanwhile, Japan's consumer prices rose at the fastest pace in a decade in June. Core prices, which exclude fruit, fish and vegetables, climbed 1.9 percent from a year earlier after increasing 1.5 percent in May, the statistics bureau said today before markets opened. The gain matched the median estimate of economists surveyed by Bloomberg News.

Halved Earnings

Canon, which gets a third of its sales from the Americas, dropped 2.4 percent to 5,230 yen, headed for the biggest decline since July 15. The stronger yen battered Japan's largest office- equipment maker, whose second-quarter operating profit fell 12 percent. Earnings in the Americas almost halved in the six months to June 30, Canon said yesterday. The yen strengthened by 5 percent over the six months to June 30.

The company will likely miss its earnings target for this year, Tetsuya Wadaki, an analyst for Nomura Securities Co., wrote in a report.

Mazda, Japan's fourth-largest automaker, tumbled 3.6 percent to 636 yen, set for the deepest drop since June 19. Bigger competitor Honda Motor Co. slumped 2.9 percent to 3,730 yen. Market leader Toyota Motor Corp. sagged 2.3 percent to 5,000 yen.

Makers of cars and electronics accounted for almost a third of the Topix's drop today.

Lower Dividend

Ford Motor Co., the world's third-largest automaker, yesterday reported a second-quarter loss that was more than twice as big as analysts had expected. The report coincided with Hino Motors Ltd.'s announcement that first-quarter earnings dropped by a quarter because of lower domestic sales and the stronger yen.

Fanuc Ltd., Japan's largest maker of industrial robots, sank 3.5 percent to 9,720 yen, set for the sharpest decline since July 8. First-quarter net income rose 9.9 percent, and the company will pay an annual dividend that's 5.8 percent lower than the previous year, Fanuc said yesterday.

``The company's order situation in automobile and general machinery related areas could become tougher from summer through early autumn,'' UBS AG analysts Hidehiko Hoshino and Satomi Yamazaki wrote in a report yesterday. Profit may fall in the second quarter, they said.

Nikkei futures expiring in September retreated 1.8 percent to 13,420 in Osaka and slumped 1.6 percent to 13,425 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.