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Nikkei edges lower, profits snapped up after rally

Published 12/09/2010, 08:33 PM
Updated 12/09/2010, 08:36 PM
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* Nikkei hits 7-mth high at open then falters

* SQ futures and options settlement seen at 10,420.74

By Antoni Slodkowski

TOKYO, Dec 10 (Reuters) - Japan's Nikkei average edged lower on Friday, backing off from a fresh seven-month high brushed at the opening, as investors snapped up profits after a rally that has lifted it over 12 percent since the beginning of November.

The market succumbed to aggressive profit-taking after testing a new target as Nikkei futures and options contracts expiring in December likely settled at 10,420.74, slightly higher than the market had expected, pushing the index to new highs right at the beginning of trade.

The settlement, known in Japan as special quotation or "SQ", is calculated from the opening prices of the 225 shares on the Nikkei average on the second Friday of the month.

"On top of profit-taking and overheating of the market, some foreign investors are unloading positions and hedging ahead of the Christmas break," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

The Tokyo market was showing signs of short-term overheating as the up-down ratio after Thursday's close stood at 169, its highest since 1977 and well above the 120 level that indicates an overheated market.

The ratio is calculated by dividing the 25-day moving average of stocks that gained the previous by those that fell.

"Adding to slightly negative sentiment is news that today's China Securities Journal reported that Chinese Central Bank may raise reserve requirements as soon as today," Kuramochi said.

China's November CPI, to be released on Saturday, will be significantly higher than October's reading of 4.4 percent and exceed the high end of market expectations of 4.8 percent, the newspaper, run by the official Xinhua News Agency, said on Friday.

By mid-morning the benchmark Nikkei was down 0.3 percent at 10,255.40, while the broader Topix index shed 0.1 percent to 890.92.

Market players said long-term positive indicators such as the "golden cross", in which the Nikkei's 25-day moving average surpassed the 200-day moving average on Thursday, suggest it will maintain its recent pace of gains and the positive mood will stay broadly unchanged.

Shares of Mitsui Engineering & Shipbuilding rose 1.5 percent on news that it plans to build a solar power plant in Tunisia.

Two sources with direct knowledge of the matter said Mitsui Engineering aims to build a tower-type concentrated solar power plant with capacity of 5 megawatts in El Borma in southern Tunisia after conducting a feasibility study next year under a joint project of the Japanese and Tunisian governments.

But Nikon Corp fell 3 percent, sharply underperforming the market after Goldman Sachs cut its rating to "sell" from "neutral" and added the stock to its "conviction sell" list. The brokerage lowered its earnings estimates for semiconductor steppers, which are part of the company's core business. (Additional reporting by Chikafumi Hodo and Ayai Tomisawa; Editing by Michael Watson)

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