TOKYO, Mar. 10, 2008 (Thomson Financial delivered by Newstex) -- Japanese shares closed at a two-and-a-half-year low on Monday on a weak dollar and growing fears the US may already be in recession.
The dollar was last trading at 102.00 yen, after hitting an 8-year low in New York.
The index reversed some of its losses in the morning session after machinery orders came in strongly. But the Nikkei lost its momentum and extended losses in the afternoon after the Japanese currency strengthened and other Asian markets fell further.
'Japanese shares are definitely oversold and any further selling is expected to be limited. But having said that, there are no incentives to buy shares either,' said Soichiro Monji, chief strategist at Daiwa SB Investments.
'Investors will usually take comfort in rate cuts by the Federal Reserve, but under the current poor economic environment, there is a possibility that a rate cut will accelerate the selling of the dollar and not provide much hope for a rally in the stock market,' said Monji.
The blue chip Nikkei was down 250.67 points or 2 percent at 12,532.13, off a low of 12,527.07.
The broader Topix declined 23.38 points or 1.9 percent to 1,224.39, off a low of 1,222.59.
Decliners outnumbered gainers 1,360 to 290, with 70 issues unchanged.
Volume rose to 2.199 billion shares from 2.077 billion Friday.
On Friday, Wall Street suffered another big loss after the government said non-farm payrolls fell 63,000 last month, the lowest in five years, adding to recession concerns in the US.
Before the opening bell, the government said Japan's core private sector machinery orders rose 19.6 percent in January from the previous month, the fastest gain since August 2000.
The rise in January was well above market expectations for an increase of 3.1 percent, according to a Thomson/IFR Markets survey.
Shares fell across the board, with steel and non-ferrous metal stocks among major decliners.
Nippon Steel fell 26 yen or 5.4 percent to 458 and rival JFE Holdings dropped 270 yen or 6.7 percent to 3,760. Top non-ferrous metal smelter Mitsubishi Materials slid 37 yen or 8 percent to 425 and major smelter Sumitomo Metal Mining tumbled 236 yen or 10.6 percent to 1,989.
Shares of Sony (NYSE:SNE) lost ground, slipping 230 yen or 5 percent to 4,380 after the company said its UK-based joint venture with Sweden's LM Ericsson (NASDAQ:ERICY) will review plans to manufacture mobile phones for NTT DoCoMo Inc (NYSE:DCM) , Japan's largest mobile operator, because of changes in market conditions.
NTT DoCoMo was flat at 158,000.
Honda Motor was 30 yen or 1 percent lower at 2,960 on a report that the country's second-largest automaker by sales would build a mini-vehicle factory complex in Japan at a cost of 50 billion yen to deal with rising demand.
Big banks were weaker, with Mizuho Financial shedding 2,000 yen or 0.5 percent to 388,000. Mitsubishi UFJ Financial declined 12 yen or 1.4 percent to 850 and Sumitomo Mitsui Financial (OOTC:SMFJY) retreated 4,000 yen or 0.6 percent to 680,000.
Top construction machinery maker Komatsu declined 110 yen or 4.3 percent to 2,465, industrial robot maker Fanuc shed 110 yen or 1.2 percent to 9,120 and Mitsubishi Heavy Industries declined 23 yen or 5.2 percent to 417 as investors shrugged off the surprisingly strong machinery data.
Defensive sectors were firmer as investors sought safer investments.
Tokyo Electric Power rose 65 yen or 2.5 percent to 2,630, major drugmaker Astellas Pharma climbed 100 yen or 2.4 percent to 4,250 and Asahi Breweries was up 41 yen or 2.1 percent at 1,965.
Some non-life insurers were firmer, with Millea up 40 yen or 1 percent at 3,950, and Mitsui Sumitomo Insurance up 43 yen or 4 percent at 1,118.
(1 US dollar = 102.00 yen)
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