Nikkei drops to 6-week low on Wall Street fall, China worries

TOKYO - Japan's Nikkei share average dropped more than 2 per cent to six-week lows on Friday morning after Wall Street tumbled as investors unloaded risky assets, hit by concerns that a slowdown in China could affect the global economy.

The Nikkei share average fell 2.2 per cent to 19,594.13 in midmorning trade, the lowest level since July 9. The index has fallen for a fourth day, and for the week, shedding 4.6 per cent so far. "Due to uncertainly about where China's economy is going, what Beijing will do (in terms of monetary policy) and how much the impact it will have on the global market, anything related to China worries is sold," said Takuya Takahashi, a strategist at Daiwa Securities.

Stocks related to Apple Inc, such as component suppliers, tumbled after the stock fell 2 per cent overnight on a report that said overall smartphone sales in China fell in the second quarter.

Alps Electric Co dropped 6.1 per cent, Nitto Denko Corp shed 3.1 per cent while TDK Corp declined 2.6 per cent.

Thirty-two of the Topix's 33 subsectors were in negative territory, and exporters with relatively high foreign ownership underperformed. Sony Corp at one point dived 5.3 per cent and Hoya Corp shed 3.4 per cent. Foreigners own 56.6 per cent of Sony shares, while they own 60 per cent of Hoya shares.

Financial stocks also tumbled, with Mitsubishi UFJ Financial Group falling 3.9 per cent and Nomura Holdings falling 3.8 per cent.

Concern about the Chinese economy was underscored by a near 8 per cent slide in the Shanghai stock index so far this week, and after the Commerce Ministry said on Wednesday that exports could continue falling in coming months. "Foreigners are unloading risky assets as they fear that they will lose money if they own stocks now," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Fujito said that the Nikkei's downside is seen at the 19,115.20 hit on July 9 for the time being, but if it drops below this level, both retail investors and pension funds may buy.

Traders said that the Bank of Japan's buying may support shares while the market stays weak. The central bank bought 33.7 billion yen worth of exchange-traded funds on both Wednesday and Thursday.

Meantime, the short-selling ratio on Thursday was 39.1 per cent, according to the Tokyo Stock Exchange, moving closer to a record high of 39.2 per cent hit earlier this year.

The broader Topix dropped 2.3 per cent to 1,586.95 and the JPX-Nikkei Index 400 declined 2.2 per cent to 14,289.49.