Japan's Stocks Drop on U.S. Economic Outlook; Sony, Canon Slump

By Masaki Kondo

Nov. 6 (Bloomberg) -- Japanese stocks dropped for the first time in three days as worse-than-expected U.S. jobs and services data caused a rally sparked by Barack Obama's presidential election victory to fizzle out.

Sony Corp., which gets a quarter of its sales from the U.S., and Canon Inc. sank more than 11 percent. Nippon Steel Corp., the world's No. 2 maker of the alloy, dropped 6.8 percent after bigger rival ArcelorMittal doubled production cuts amid slowing demand. Oil explorer Inpex Corp. slid 11 percent after crude tumbled. Isuzu Motors Ltd. and Orix Corp. fell after slashing profit forecasts.

``We've yet to see the full impact of the financial crisis on the global economy,'' said Naoki Fujiwara, who oversees about $720 million at Shinkin Asset Management Co. in Tokyo. ``U.S. employment has a direct impact on consumer spending, and thus affects earnings for exporters in Japan and throughout Asia.''

The Nikkei 225 Stock Average slumped 622.10, or 6.5 percent, to close at 8,899.14 in Tokyo. The broader Topix index fell 57.61, or 6 percent, to 909.30, with almost seven stocks sliding for each that rose on the gauge.

Yesterday, the Nikkei climbed 4.5 percent, extending its rebound to 33 percent from a 26-year low on Oct. 27, as expectations grew that Obama will take additional measures to spur U.S. economic growth.

The Topix lost more than a third of its value this year through yesterday, making its constituents' average dividend payouts higher than yields on 10-year government bonds. A global credit crisis, caused by the collapse of the U.S. mortgage market, has erased $1.2 trillion from Japanese equities and weighed on overseas demand for the nation's products.

U.S. Contraction

A gauge of service industries in the U.S. contracted the most on record to 44.4 last month, below the 47 estimated by economists, according to the Institute for Supply Management. U.S. companies cut 157,000 jobs in October, the most since November 2002 and more than an estimated drop of 102,000, according to ADP Employer Services.

Sony, the world's second-biggest maker of consumer electronics, lost 11 percent to 2,295 yen, erasing yesterday's 9.1 percent surge. Canon, the world's biggest camera maker, dropped 13 percent to 3,470 yen after gaining 13 percent yesterday.

Toyota Motor Corp., Japan's largest automaker, slid 10 percent to 3,810 yen, leading car manufacturers to the sharpest drop among 33 industry groups on the Topix. The company cut its annual earnings estimate by more than half, forecasting the biggest drop in at least 18 years. Profit is expected to fall to 550 billion yen in the 12 months ending March 31 from 1.72 trillion yen a year earlier, the company said after markets shut.

Steel Production

Isuzu, Japan's largest maker of light-duty trucks, tumbled 21 percent to 161 yen, the biggest loser on the MSCI World Index. The company reduced its annual income forecast by more than half as sales slow in Thailand and a stronger yen erodes profit.

Exporters also declined as the yen advanced. The Japanese currency appreciated to as much as 97.57 per dollar from 99.58 at the close of stock trading in Tokyo yesterday, reducing the value of repatriated sales of Japanese companies. The yen strengthened against the euro to as much as 125.36 from 128.14.

Nippon Steel fell 6.8 percent to 331 yen, while JFE Holdings Inc., Japan's second largest steelmaker, slid 7.4 percent to 2,645 yen. ArcelorMittal, the world's biggest steelmaker, yesterday forecast an earnings drop of as much as 48 percent in the fourth quarter and said it will cut global output more than 30 percent.

Inpex, Japan's largest oil and gas explorer, sank 11 percent to 599,000 yen, while Japan Petroleum Exploration Co. lost 6.3 percent to 4,170 yen. Both companies surged more than 12 percent yesterday. Sumitomo Metal Mining Co., Japan's second- biggest copper smelter, fell 7.9 percent to 756 yen.

Company Earnings

Crude oil for December delivery retreated 7.4 percent to $65.30 a barrel in New York yesterday, the steepest drop since Oct. 10, as gasoline inventories rose in the U.S. Copper futures for December delivery slumped 7.1 percent.

The International Monetary Fund projects the economies of Japan, the U.S. and euro zone will shrink next year, according to a fund staffer who cited revised forecasts. Japan will contract 0.2 percent from a 0.5 percent expansion the fund had predicted a month ago, with global growth expected to slow to 2.2 percent next year from 3.7 percent this year.

``Considering economic fundamentals, it's hard to imagine stocks will rise,'' said Kazuyuki Terao, who helps oversee about $1.7 billion as chief investment officer of RCM Japan Ltd. in Tokyo. ``Company earnings are dwindling and we seem to be receiving more bad news.''

Orix, the nation's largest non-bank financial company, plummeted 14 percent to 10,300 yen. The company yesterday cut its full-year earnings estimate by 40 percent, citing falling profit from securities transactions.

Nikkei futures expiring in December retreated 7.6 percent to 8,800 in Osaka and slumped 7.1 percent to 8,870 in Singapore.

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