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Nikkei edges up but financials under pressure

TOKYO - Japan’s Nikkei stock average edged up 0.3 percent on Tuesday as the yen retreated against the dollar, though banks lost ground as resurgent fears about their overseas peers erased recent optimism.

Some tech shares slid after sentiment was bruised by worries about the potential collapse of a takeover of Sun Microsystems after a source with knowledge of the matter said talks with IBM to acquire its smaller rival broke down.

Investor nerves about the imminent corporate earnings season led to selling of several shares, including Hitachi Construction Machinery, after media reports forecasting losses.

Bank shares fell in the United States after a veteran analyst warned banks still face fallout from excessive risk-taking and warned of rising loan losses by the end of 2010. “The market’s stance on banks had been too optimistic recently,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

“Some large U.S. banks have already passed stress tests, but others haven’t, and given that results are coming up soon, this simply reignited investor uncertainty.”

This nervousness was fuelled by a report that new forecasts from the International Monetary Fund (IMF) are set to suggest that toxic debts racked up by banks and insurers could spiral to $4 trillion.

“As a financial guardian the IMF may be correct to put out this kind of forecast, but it’s likely to add to the pessimistic mood and shows the problems aren’t solved,” Yamagishi added.

Veteran banking analyst Mike Mayo, who recently transferred Calyon Securities, initiated coverage of the U.S. banking sector with an “underperform” rating, saying the sector’s problems still have further to run while government action may not help as much as expected.

Analysts noted that the Nikkei has marked such sharp gains recently and that profit-taking was long overdue, helping to pressure financials.

“The Nikkei rose 25.6 percent from the March 10 low, giving the market the sense that it’s perhaps risen too high,” said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.

The Nikkei on March 10 closed at 7,054.98, its lowest close since Oct 1982.

Though it spent most of the morning in negative territory, the benchmark Nikkei gained 26.52 points to 8,884.45 and was on track for a fifth successive day of gains.

The broader Topix rose 0.5 percent to 835.46. CARS CLIMB, TECHS TROUBLED

Though the dollar lost 0.2 percent against the yen, at 100.74 yen it was well off the day’s lows, buoying some exporters. Investors look favourably on a weaker yen as a strong yen eats into exporter profits when repatriated.

Sony Corp rose 1 percent to 2,445 yen and Panasonic Corp edged up 0.5 percent to 1,248 yen.

Automakers extended gains, bolstered by the continuing positive impact of report at the weekend that Japan is considering a subsidy for purchases of hybrids and other low-emissions vehicles.

Honda Motor Co gained 2.9 percent to 2,825 yen and Toyota Motor Corp rose 0.3 percent to 3,750 yen. Nissan Motor Co gained 1.5 percent.

Mitsubishi UFJ Financial Group, Japan’s top lender, lost 1 percent to 508 yen, becoming the biggest drag on the Nikkei 225 by volume weight. No. 3 bank Sumitomo Mitsui Financial Group edged down 0.6 percent to 3,590 yen. Mizuho Financial Group pared earlier losses to finish the morning flat.

Kyocera fell 1.9 percent to 6,780 yen and Hitachi Ltd lost 0.6 percent to 309 yen.

Hitachi Construction Machinery Co Ltd slid 2.8 percent to 1,375 yen after the Nikkei business daily said the earth-moving equipment maker was likely to post a 50 percent fall in operating profit in the year to March 2010 on declining overseas sales.

Some 1.1 billion shares were traded on the Tokyo Exchange’s first section, roughly in line with last week’s morning average.

Advancing shares outnumbered declining ones by 894 to 657.