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

By Masaki Kondo and Toshiro Hasegawa

July 25 (Bloomberg) -- Japan's stocks dropped, snapping a three-day rally, on concern overseas earnings will shrink after Canon Inc. said profit declined on the stronger yen and slowing sales in the U.S. and Europe.

Canon, which derives 80 percent of its revenue from abroad, fell the most in three months after reporting a third-straight drop in earnings. Fanuc Ltd., the world's top industrial robot maker which counts Asia as its biggest export market, sank the most in more than four months after analysts said profit may drop. Consumer lender Aiful Corp. tumbled after gaining 17 percent over the three days through yesterday.

``It's the worst-case scenario for Japanese stocks if Europe and emerging markets slow even as the U.S. slump deepens,'' said Hiroshi Sato, president of Tokyo-based Sato Asset Management Co.

The Nikkei 225 Stock Average declined 268.55, or 2 percent, to close at 13,334.76 in Tokyo, halting its longest winning streak since June 2. The broader Topix index fell 34.29, or 2.6 percent, to 1,298.28, the deepest dive since March 17. The Nikkei gained 4.2 percent for this holiday-shortened week, the biggest weekly advance since Feb. 15, while the Topix rose 3.7 percent.

Signs that overseas markets are slowing coincided with a report today showing Japanese inflation rose the most in a decade, crimping domestic demand. U.S. sales of existing homes fell to the lowest in a decade in June, while separate reports showed German business confidence plunged the most since the Sept. 11 terrorist attacks and European manufacturing and services shrank.

Nikkei futures expiring in September retreated 2.3 percent to 13,350 in Osaka and slumped 2.2 percent to 13,345 in Singapore.

To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.