Mideast tension hits NikkeiJapan market falls on Middle East...

Mideast tension hits Nikkei
Japan market falls on Middle East crisis; steel stocks down on merger fall out.
July 17 2006: 11:24 PM EDT


TOKYO (Reuters) -- The Nikkei average fell 1.67 percent on Tuesday as concern over violence in the Middle East hit recent gainers such as Mitsubishi UFJ Financial Group Inc., while steel stocks fell on news that Nippon Steel Corp. will maintain its ties with Arcelor.

The steel sector had risen recently on hopes for industry consolidation in the wake of Mittal Steel's successful $32 billion bid for Arcelor

Analysts said growing security concerns and their impact on the global economy and money flows played a key role in the sell-off rather than domestic factors such as earnings results, the economic outlook or the supply-demand balance for shares.

Koji Muneoka, a vice president of sales and trading at JP Morgan Securities Asia, said the Tokyo market took a blow from the downtrend abroad.

"Oil is a key factor," he said. "Japan shares the worries about a rise in oil prices due to the emergence of Middle East tension and its impact on the U.S. economy," Muneoka said.

The Nikkei average was down 247.63 points at 14,597.61, extending falls into a fifth session. The Tokyo market was closed for a holiday on Monday.

The capital-weighted TOPIX index fell more steeply, losing 2.13 percent to 1,489.30.

Check world indexes here ...
Bank shares were among the hardest hit after rising recently on expectations that a widening spread between lending rates and deposit rates would prop up the sector's earnings.

Japan's central bank raised interest rates for the first time in six years on Friday, lifting its key rate to 0.25 percent from zero and affirming the end of a long era of deflation and economic stagnation.

Mitsubishi UFJ Financial Group, Japan's biggest banking group, dropped 3.2 percent to 1.53 million yen. No. 2 Mizuho Financial Group Inc. fell 2.7 percent to 935,000 yen.

Steel makers hit
Some analysts noted signs of a change in global money flows.

"The selling now has little do to with the Japanese economy and its fundamentals," said Tsuyoshi Nomaguchi, a strategist at Daiwa Securities.

"It's about investor worries about capital flight for safer assets, which is being reflected in a sell-off in the yen for the dollar," he said.

The dollar hit a three-month high of 117.29 yen on Monday and stood slightly below 117 yen on Tuesday as investors turned to the perceived safety of the world's most liquid currency due to the rising tension in the Middle East.

In the steel sector, Nippon Steel, Japan's biggest steel maker, fell 1.6 percent to 436 yen after news on Monday that the heads of Mittal Steel and Nippon Steel had agreed to continue an alliance between Nippon Steel and Arcelor.

No.2 JFE Holdings Inc. dropped 4.5 percent to 4,500 yen.

Camera and copier maker Canon Inc. slid 2.9 percent to 5,330 yen after the Nihon Keizai business daily said on Tuesday that Dell Inc., the world's top personal computer maker, will enter Japan's office-use color printer market with products priced around half the cost of competitors' products.

Japan Airlines Corp. sank 4.3 percent to 243 yen after the carrier's announcement that it would allocate more of its planned $1.94 billion new share issue to overseas markets underlined worries that the offering could prove a flop.

Trade was active, with 866 million shares changing hands on the Tokyo exchange's first section, up from last week's morning average of 770 million. Decliners beat advancers by a ratio of more than 10 to one.