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Nikkei sheds gains, eyes on Chinese equities

Published 08/18/2009, 01:17 AM
Updated 08/18/2009, 01:18 AM
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* Support seen solid at 10,100, near 25-day moving average

* Commodity-linked shares down after metals, oil drop

* Shanghai stocks slip, weigh on Tokyo shares

TOKYO, Aug 18 (Reuters) - Japan's Nikkei stock index trimmed earlier gains to dip 0.8 percent on Tuesday, with market players taking cues from fluctuations in Shanghai shares after Chinese equities tumbled the previous day.

Mitsubishi Corp and other trading houses lost ground after commodities fell on growing doubts about economic recovery.

But the big focus was China after shares there plunged 5.8 percent on Monday. The Shanghai Composite Index was down 1.1 percent after having swung between positive and negative territory earlier in the day.

Tokyo analysts were a bit sceptical about how much weight should be placed on Chinese share movements, noting that sharp gains in global markets since March had primed them for profit-taking.

Given worries that the surge in stocks may have run ahead of economic recovery, Tokyo shares may be poised for more weakness in the near-term, said Masayuki Doshida, a market analyst for Matsui Securities.

"I think there is pretty much a consensus that a pull-back is needed," Doshida said.

The question is whether the retreat in Tokyo shares will be sudden and quick or take place gradually Doshida said, adding that the latter scenario seemed more likely.

"Share prices rose more than expected as recovery hopes grew, and people who were not able to ride that trend are likely to search for levels to conduct bargain-hunting," Doshida said.

The benchmark Nikkei fell 0.8 percent or 82.73 points to 10,185.88. It closed at 10,268.61 on Monday after falling 3.1 percent, its biggest one-day percentage fall in nearly five months.

The broader Topix fell 0.8 percent to 942.28.

A form of technical analysis known as Moving Average Convergence/Divergence (MACD), suggests the Nikkei may face selling pressure in the near-term. The MACD line has broken below the signal line on daily charts, and is flashing a bearish signal.

Market analysts said they expected support to hold for the benchmark Nikkei around 10,100, or just above the 25-day moving average, although some investors see the risk of the Nikkei falling below 10,000 if falls in Chinese shares persist.

Casio Computer Co Ltd jumped 6 percent to 790 yen after Credit Suisse lifted its rating to "outperform" from "underperform", saying the brokerage expects an earnings recovery in the firm's loss-making businesses including mobile phone handsets.

But trading companies lost ground as metals and oil prices fell on Monday, with Mitsubishi Corp, Japan's largest trader, losing 3.2 percent to 1,861 yen. (Reporting by Masayuki Kitano and Elaine Lies; Editing by Joseph Radford)

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