Japan Stocks Extend Weekly Drop on Oil Surge; Tiremakers Slump

By Masaki Kondo
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Aug. 22 (Bloomberg) -- Japan stocks fell, capping the Nikkei 225 Stock Average's biggest weekly loss in two months, on concern surging oil prices and rising credit costs will reduce earnings at manufacturers and financial companies.

Sumitomo Rubber Industries Ltd. lost 2.7 percent, leading a decline by makers of rubber products, after crude jumped the most in 11 weeks. Sumitomo Mitsui Financial Group Inc., whose first- quarter profit halved because of bad-loan costs, sank 3.6 percent as Citigroup Inc. said U.S. banks will post more writedowns. Kawasaki Kisen Kaisha Ltd. led shipping lines lower after Mizuho Securities Co. cut its rating.

``Given supplies of commodities such as crude are limited, higher prices are inevitable as more and more countries join the developed world,'' Yuuki Sakurai, a Tokyo-based general manager at Fukoku Mutual Life Insurance Co., which manages about $54 billion, said in an interview with Bloomberg Television. ``The market is very vulnerable to even the smallest bad news.''

The Nikkei 225 retreated 86.17, or 0.7 percent, to close at 12,666.04 in Tokyo, the lowest since April 1. The broader Topix index fell 8.11, or 0.7 percent, to 1,216.42. Almost three stocks fell for every two that rose on the Topix.

The Nikkei capped a weekly loss of 2.7 percent, the most since June 27, while the Topix fell 2.5 percent. The total value of trading on the Tokyo exchange today was the lowest this year.

Crude oil futures surged $5.62, or 4.9 percent, to $121.18 a barrel yesterday, the most since June 6, as the depreciation of the dollar raised the appeal of commodities as an inflation hedge. Meanwhile, the Reuters/Jeffries CRB Index of 19 commodities soared 3.7 percent, set for the biggest weekly gain in 33 years.

Tire Costs

Sumitomo Rubber, Japan's third-largest tiremaker, slumped to 843 yen, while Bridgestone Corp., the world's biggest, dropped 2.4 percent to 1,729 yen. Bridgestone has lost 9.5 percent of its value since Aug. 18, as oil rebounded from a three-month low. About 60 percent of the materials used in tires are oil based, according to the Japan Automobile Tyre Manufacturers Association.

Inpex Holdings Co., Japan's biggest oil explorer, climbed 2.2 percent to 1.19 million yen, the highest since July 15. Mitsubishi Corp., a trading company that gets more than half its profit from commodities, added 3.2 percent to 3,050 yen, while smaller rival Mitsui & Co. jumped 2.6 percent to 1,799 yen.

Sumitomo Mitsui, Japan's third-biggest listed bank by assets, slid to 637,000 yen, while market leader Mitsubishi UFJ Financial Group Inc. retreated 2.1 percent to 793 yen. Consumer lender Aiful Corp. plunged 8.6 percent to 997 yen, the lowest on record and the second-worst performer on the MSCI World Index. Banks accounted for a third of the Topix's decline.

`Skittish' Investors

Citigroup analyst Prashant Bhatia said Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. will write down a combined $6.4 billion in the third quarter.

Japan's economy shrank in the three months to June 30, the first such decline in a year, while bankruptcies rose to a five- year high in July. Increased provisions and writedowns on non- performing loans drove down Sumitomo Mitsui's first-quarter net income by 51 percent and Mitsubishi UFJ's by 66 percent.

``Investors are skittish,'' said Hideo Arimura, who oversees the equivalent $1.9 billion at Mizuho Asset Management Co. in Tokyo. ``As credit costs at Japan's major financial companies surged, some investors are beginning to expect lenders will cut their full-year earnings targets.''

Kawasaki Kisen, Japan's third-largest shipping company, fell 3.8 percent to 752 yen, while Mitsui O.S.K. Lines Ltd., the second biggest, dropped 2 percent to 1,250 yen.

Satoru Kunieda, a Tokyo-based analyst for Mizuho Securities, yesterday cut his ratings on the companies to ``buy'' from ``strong buy'' and slashed their price estimates on the companies by as much as 31 percent.

Machinery Makers

Sumitomo Heavy Industries Ltd. tumbled 3.9 percent to 540 yen, while Hitachi Construction Machinery Co. fell 3.6 percent to 2,540 yen. Fanuc Ltd., the world's top industrial-robot maker, slipped 2.5 percent to 8,120 yen.

The Japan Construction Equipment Manufacturers Association yesterday predicted lower shipments of domestically made machinery than it had expected in February. The Japan Machine Tool Builders' Association said the same day tool orders fell 12 percent in Europe last month from a year earlier.

Nikkei futures expiring in September retreated 0.6 percent to 12,670 in Osaka and slumped 0.4 percent to 12,695 in Singapore.

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