Japan Stocks Fall, Led by Daiwa Securities, Dainippon Sumitomo

By Patrick Rial and Satoshi Kawano

Sept. 4 (Bloomberg) -- Japanese stocks declined to their lowest close in more than a month as Daiwa Securities Group Inc. entered talks to dissolve a venture and chemical producers sagged on concern demand isn’t recovering.

Daiwa slumped 6.1 percent after Sumitomo Mitsui Financial Group Inc. said the companies are in talks to end their venture, leaving Daiwa without a banking partner. Sumco Corp. lost 4.7 percent after the Nikkei newspaper said the world’s second- largest maker of silicon wafers will cut production capacity. Dainippon Sumitomo Pharma Co. plunged 6.1 percent after Bank of America Corp. lowered its investment rating on the stock.

“I’m guessing we’ll see the correction continue before a real buying opportunity emerges,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $13 billion. “Recent data has been fundamentally strong, but the market is showing a lukewarm reaction.”

The Nikkei 225 Stock Average lost 0.3 percent to 10,187.11 at the close of trading in Tokyo, reversing a 0.4 percent climb. The broader Topix index slipped 0.8 percent to 935.74, with more than three times as many stocks falling as rising. Both measures finished trading at the lowest levels since July.

In the last five days, the Nikkei fell 3.3 percent, while the Topix lost 3.5 percent, the most in eight weeks.

Investors avoided taking large positions ahead of U.S. unemployment data today that may give an indication on the state of the economic recovery, Morikawa said.

U.S. Unemployment

Companies cut payrolls by 230,000 workers, according to economists surveyed by Bloomberg. Estimates ranged between 100,000 and 365,000 jobs cut.

“Opinions on the unemployment data are at polar opposites, making investors wary of diving into the market today,” Morikawa said.

Japanese companies slashed capital spending in the second quarter by 22 percent from the previous year, a ninth consecutive drop, the Finance Ministry said today.

Daiwa fell 6.1 percent to 508 yen, its largest drop since June 29 and the steepest decline in the Nikkei 225. Sumitomo Mitsui slipped 2.1 percent to 3,770 yen. Nomura Holdings Inc., Daiwa’s larger rival, slumped 3.7 percent to 755 yen. The Topix gauge of securities companies had the biggest loss among 33 industry groups in the broader measure.

Daiwa may pay about 200 billion yen ($2.16 billion) to buy out Sumitomo Mitsui’s 40 percent stake in their brokerage venture, the Nikkei reported, citing unidentified people at both companies. Sumitomo Mitsui may lend Daiwa about 100 billion yen for the transaction, the report said.

‘Weaker Business’

“Daiwa will be a weaker business trying to survive as an independent company with competitors that have mostly strengthened,” said David Threadgold, a Tokyo-based analyst at Fox-Pitt Kelton. “MUFG is putting Mitsubishi UFJ Securities together with Morgan Stanley Japan, Nomura has beefed up with Lehman and Daiwa’s old partner will now be a competitor.”

Dainippon Sumitomo slumped 6.1 percent to 963 yen, a day after agreeing to buy U.S. drugmaker Sepracor for $2.6 billion to gain a U.S. sales force and experimental treatments in the world’s biggest drug market. Ritsuo Watanabe, an analyst at Bank of America, cut the stock to “underperform” from “neutral.”

Sumco dropped 4.7 percent to 1,969 yen. The company will lower 300 millimeter wafer production capacity by 10 percent, the Nikkei reported, indicating demand has yet to recover. Sumitomo Chemical Co., Japan’s second-largest chemical producer, slid 2.8 percent to 420 yen. Mitsubishi Gas Chemical Co. fell 3.3 percent to 500 yen.

Seven & I Holdings Co., the operator of 7-Eleven convenience stores, dropped 2.3 percent after Bank of America cut the shares to “neutral” due to projected weakness in the company’s department stores and general merchandise shops.

Toshiba Corp., Japan’s biggest maker of nuclear reactors in terms of power capacity, retreated 2.3 percent to 466 yen. The company may pay 500 billion yen ($5.4 billion) for the power transmission and distribution unit of Areva SA, Reuters reported, citing Jiji Press.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Satoshi Kawano in Tokyo at Skawano1@bloomberg.net.