Nikkei down 1 pct on gloom about economy, earnings

Thu Aug 7, 2008 4:01am EDT

By Taiga Uranaka

TOKYO (Reuters) - The Nikkei stock average fell 1 percent on Thursday, with potentially positive factors such as a softer yen overshadowed by gloom over the economy and corporate earnings, while banks were sold after disappointing results from their U.S. peers.

Air-conditioner maker Daikin Industries Ltd made its biggest one-day fall in 16 years after it cut its profit outlook on sluggish sales in Europe, which prompted a sharp brokerage downgrade.

The day's fall, following a strong rally in the previous day, came despite a raft of factors that usually lift the Tokyo market, including overnight gains on Wall Street.

"Concerns about the financial sector are still lingering, with AIG shares falling after-market trading following its earnings," said Yukio Takahashi, market analyst at Shinko Securities.

"And the other problem is that the yen's fall is a bad one, caused by the deteriorating Japanese economy," he said.

A weaker yen usually gives a lift to the market as it boosts Japanese exporters by making their goods more competitive overseas and increasing profits when repatriated.

Government figures showed on Wednesday that Japan's longest post-war economic expansion may be over, as an index of indicators including industrial output and corporate profits sank in June.

"There were few willing to build new positions. Slowdown in the global economy has been become more clear," said Norio Shimura, deputy head of equity department at Chuo Securities.

"So, it's an absence of buyers, rather than selling overwhelming the market," he said.

The benchmark Nikkei .N225 ended down 129.90 points at 13,124.99 while the broader Topix fell 1.6 percent to 1,258.81.

SENSE OF SLOWDOWN

Investors were cautious ahead of quarterly results by Toyota Motor Corp after the close, with the market waiting to see if the automaker will cut its profit outlook after revising down its sales target. Toyota ended down 1.3 percent at 4,580 yen.

Banks dragged on the market after American International Group Inc , the world's largest insurer, posted its third consecutive quarterly net loss on Wednesday, hurt again by the write-down of derivatives linked to bad mortgage investments.

Top lender Mitsubishi UFJ Financial Group fell 3.9 percent to 869 yen, while No. 2 Mizuho Financial Group sank 3.5 percent to 476,000 yen.

Daikin plunged 11.1 percent to 4,010 yen, down by its daily limit, after the air-conditioner maker cut its full-year outlook and Credit Suisse cut its rating to "underperform" from "outperform".

The company's downward revision came after it posted a 24.6 percent drop in first-quarter operating profit, hurt by slower demand in Europe due to a weaker economy and unseasonable weather.

On a positive note, Kubota Corp soared 15.2 percent to 759 yen after the farm equipment maker's first-quarter profit fell less than expected and Goldman Sachs said the firm was likely to raise its full-year outlook.

Inpex Holdings jumped 6.3 percent to 1.08 million yen after Nikko Citi raised its rating to "buy/high risk" from "hold/high risk," saying the oil and gas field developer was likely to report strong earnings and raise its outlook when it announces first-quarter results on Friday.

Trade picked up, with 2.03 billion shares changing hands, compared with last week's daily average of 1.84 billion.

Declining shares beat advancing ones by nearly five to one.

(Editing by Ben Tan)