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Nikkei slips, India rate hike hurts resource shares

Published 01/25/2011, 10:10 PM
Updated 01/25/2011, 10:11 PM

* Nikkei loses 0.4 pct by midday

* Resource shares stocks down on worries over tightening

* Komatsu gains on report of strong Q3 earnings

* Eisai slides on setback for sepsis drug

By Antoni Slodkowski

TOKYO, Jan 26 (Reuters) - Japan's Nikkei average fell on Wednesday for the first time in three days with resource shares losing ground after an Indian rate hike and a contraction in Britain's economy led to a pull-back in commodities prices.

Market players were, however, reluctant to actively take new positions ahead of the conclusion of the Federal Reserve's two-day policy meeting and President Barack Obama's State of the Union speech.

A pledge by the Fed to continue its $600 billion bond-buying plan could bolster the dollar against the yen, as well as equities on hopes for continued liquidity, they said.

The Indian rate hike, expectations that China will soon lift rates, as well as expectations that this trend will continue as raw materials and food costs rise hit commodities prices on Tuesday.

"Worries over monetary tightening will persist in the long term, weighing especially on shares of producers dependent on raw materials as their prices are still near all-time highs," said Masayuki Otani, chief market analyst at Securities Japan Inc.

By the midday break, the benchmark Nikkei was down 0.4 percent or 42.03 points at 10,422.39, slightly above the 10,420 level where its December futures and options prices settled.

The broader Topix index fell 0.3 percent to 926.23.

Morning volume slipped from the previous day with 760 million shares changing hands on the Tokyo Stock Exchange's main board, suggesting volume for the full day will be well below last week's average of 2.15 billion shares.

Earnings were in focus with Komatsu Ltd climbing on a report that it is expected to post better-than-expected results for October-December. But the drug sector slid on a big setback for Eisai Ltd's sepsis drug and a report of lax checks for Mitsubishi Tanabe.

RATE HIKES WEIGH ON SENTIMENT

Komatsu Ltd rose 1 percent to 2,450 yen after the Nikkei daily said it would likely log an operating profit of about 220 billion yen ($2.7 billion) for the year to March 31, roughly triple its previous year's result.

"In normal conditions, a stock like Komatsu would have probably gained much more, but as worries over China persist, it's very hard for this stock to advance further," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

"In the current environment, after an Indian hike and Chinese hike expected around the beginning of February, investors react to earnings very nervously. Shin-Etsu was sold on Tuesday despite strong earnings, because it left its yearly outlook unchanged, disappointing investors."

Eisai Ltd, Japan's fourth-largest drug company, fell 4.8 percent to 2,811 yen after it said late-stage trials for sepsis drug eritoran showed no reduction in mortality rates compared with a placebo.

Among resource shares Inpex Corp, Japan's top oil and gas developer, lost 1.3 percent to 519,000 yen and Mitsui Mining & Smelter fell 1.4 percent to 290 yen.

President Barack Obama, seeking to assure Americans weary of 9.4 percent unemployment and fearful of rising debt, was to lay out his plan to reinvigorate economic growth in a State of the Union address at 0200 GMT.

In prepared remarks released by the White House, Obama proposed a freeze on annual U.S. spending for the next five years.

"Exporters are little changed today as traders await Obama's speech, which may impact exchange rates," Otani said.

The dollar inched towards last week's two-week low against the yen. (Additional reporting by Chikafumi Hodo and Isabel Reynolds; Editing by Edwina Gibbs)

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