Japan Stocks Drop on Profit Concern, Euro Weakness; Sony Drops

By Masaki Kondo

Oct. 22 (Bloomberg) -- Japan stocks fell for the first time in four days on concern the slowing global economy will weigh on profits and as the tumbling euro cut the value of European sales.

Mitsubishi UFJ Financial Group Inc., Japan's largest listed bank, sank 6.1 percent on a report the lender's six-month earnings probably dropped by half. NEC Electronics Corp., the nation's third-biggest chipmaker, tumbled by a record 19 percent after reversing its earnings forecast to a loss. Sony Corp., which gets about a quarter of its sales in Europe, lost 6.3 percent after euro retreated to a four-year low against the yen.

``As the domestic economy worsens, big banks can't avoid a slump in earnings as bad loans mount,'' said Mitsushige Akino, who oversees about $468 million at Tokyo-based Ichiyoshi Investment Management Co. ``Semiconductor stocks are what investors are most reluctant to buy right now. There is no end in sight to how bad the industry will get.''

The Nikkei 225 Stock Average dropped 265.18, or 2.9 percent, to 9,041.07 at the 11 a.m. trading break in Tokyo, its first retreat since Oct. 16. The broader Topix index fell 31.69, or 3.3 percent, to 924.95, with more than five stocks declining for each that rose. All but one of 33 industry groups on the Topix slumped.

Mitsubishi UFJ fell 6.1 percent to 797 yen, while closest rival Mizuho Financial Group Inc. dived 4.7 percent to 348,000 yen. Sumitomo Mitsui Financial Group Inc., Japan's third-biggest listed bank by assets, dropped 5.7 percent to 518,000 yen. Banks contributed the most to the Topix's decline, followed by electronics makers.

First-half profit at Mitsubishi UFJ will likely drop about 50 percent because of an increase in bad-loan costs and writedowns on shareholdings, Nikkei said today. Mizuho and Sumitomo Mitsui may post earnings that are lower than their estimates, the newspaper said.

Chip Demand

NEC Electronics plunged 19 percent to 1,227 yen, headed for the steepest drop since it listed on the bourse in July 2003. The company yesterday said it will probably have a net loss of 8 billion yen ($79.7 million) in the year to March 31 because demand for semiconductors slumped. The company had previously forecast it would break even this year.

NEC Corp., the parent of the chipmaker, tumbled 9.4 percent to 337 yen, making it the third-biggest loser on the Nikkei, while Advantest Corp., the world's biggest maker of memory-chip testers, plunged 7.1 percent to 1,404 yen.

``There is no escaping the drop off we're going to have in profits and the market is taking any bad news on earnings as a signal to sell,'' said Jun Morita, who helps oversee $365 million at Chiba Bank Ltd. in Tokyo.

Euro Effect

Sony, the world's largest maker of home video-game consoles, lost 6.3 percent to 2,530 yen. Endoscope maker Olympus Corp., which counts Europe as its biggest overseas market, stumbled 5.6 percent to 2,275 yen. Konica Minolta Holdings Inc., the world's second-largest maker of film used in liquid-crystal displays, dived 10 percent to 772 yen, after KBC Securities Japan cut its price estimate by almost half, citing a weaker European currency.

The yen appreciated against the euro to as much as 130.18, the strongest level since June 2004, from 135.27 at the close of stock trading in Tokyo yesterday. A 1 yen change against the euro affects Sony's annual operating profit by 7 billion yen, the company said in May, while it changes Konica's profit by about 850 million yen, according to KBC.

Nikkei futures expiring in December retreated 2.1 percent to 9,050 in Osaka and slumped 1.8 percent to 9,070 in Singapore.

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