Nikkei Drops With Resource Stocks, Manufacturers Under Pressure

(Reuters) - Japanese shares slid to a two-week low in early Friday trade as stocks related to China and resources remained under pressure, while Sharp Corp (6753.T) took a dive as investors grew impatient for Taiwan's Hon Hai Precision Industry (2317.TW) to decide on a tie-up.

Expectations of further stimulus measures from the U.S. Federal Reserve that investors hoped might bolster the slowing global economy also faded, prompting the Nikkei to shatter its 25-day moving average at 8,930.54, as it dropped 0.8 percent to 8,910.00.

"The whole market is coming under pressure -- the sense of uncertainty around Sharp's fate is the same as the unease around the market as a whole," said Kenichi Hirano, operating officer at Tachibana Securities.

The Nikkei's 25-day moving average broke above its 250-day moving average to form a "golden cross", usually a bullish sign. However, Hirano said that it could be a contrarian sign and is likely to precede a drop in equities instead, as there are currently few incentives to buy.

Sharp fell 8.8 percent after the chairman of Hon Hai left Japan on Thursday without announcing a deal to buy a 9.9 percent share of the embattled consumer electronics maker. Expectations of a deal helped to boost Sharp's share price 28 percent between August 22 and 29.

"From a shareholders' perspective, they just want things decided ... Maybe Hon Hai wants a bigger stake, but it's not clear," Hirano said.

STEEL SECTOR SINKS

Nippon Steel Corp (5401.T) dropped 3.1 percent and Sumitomo Metal Industries Ltd (5405.T) slipped 3.4 percent after both separately widened their net loss forecasts for the six months ending September 30, reflecting a strong yen and tough competition in the industry ahead of their merger, which will create the world's second-biggest steelmaker.

Nippon Steel widened its net loss forecast to 155 billion yen ($2 billion) from the previous guidance of 85 billion yen, while Sumitomo Metal Industries revised its net loss forecast to 128 billion yen from a previous figure of just 8 billion yen.

They added to a bearish outlook for the iron and steel sector .ISTEL.T, which dropped 2.1 percent as the worst performing sub-index on the main board after falling 2.7 percent on Thursday, while iron ore prices .I062-CNI=SI hit a three-year low. The mining sector .IMING.T lost 1.9 percent.

In another symptom of a global slowdown, Japan's industrial output unexpectedly fell 1.2 percent in July, compared with a median forecast of a 1.7 percent increase according to a Reuters poll. The purchasing managers index for August also showed manufacturing activity in Japan at its lowest since the immediate aftermath of last year's earthquake.

Toshiyuki Kanayama, a senior market analyst at Monex, said month-end "window dressing", a strategy to buy stocks with a strong performance to improve the appearance of portfolios, would not lend much support to the market as expectations faded of further stimulus from the U.S. Federal Reserve.

"Very few people expect (Chairman Ben) Bernanke to push forward with further easing now, so there's not much to be positive about today," he said.

In the previous two years Bernanke has used the economic symposium in Jackson Hole, Wyoming, which starts on Friday, to signal the direction of monetary policy, raising expectations he may hint at a fresh round of Fed bond purchases.

Those hopes, in addition to expectations that the European Central Bank would act to bring down soaring borrowing costs for Italy and Spain, drove the Nikkei up more than 10 percent from a seven-week low on July 25 to a three-and-a-half month peak on August 20.

The benchmark is now up 2.4 percent on the month and on track for its best August performance since 2006. But fading expectations of imminent U.S. stimulus due to recent strong data weighed on the Nikkei on Thursday, pushing it down to 8,983.78, its lowest close since August 15. The broader Topix lost 0.8 percent to 737.87.