Nikkei drops 0.61% on Shanghai stocks' retreat, output data provides support

21:12, December 28, 2010      

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A man walks past an electronic board displaying stock information in Tokyo on Dec. 28, 2010. The 225-issue Nikkei Stock Average lost 63.36 points from Monday to 10,292.63, dropping 0.61 percent. (Xinhua/Kenichiro Seki)

Tokyo stocks retreated in the thinest day of trading this year, with the key Nikkei stock index dropping 0.61 percent on Tuesday as Shanghai shares took a tumble, although robust domestic industrial output data and hopes that demand for Japanese goods will continue to show an upward trend leant support to the market.

Brokers said that fears China's interest rate hike will hamper the pace of economic development had a marginally adverse effect on commodity prices and as the yen appreciated against the U.S. dollar, some investors opted to lock in gains ahead of the holiday season, rather than chase higher issues.

"The market has started to price in further Chinese increases in interest rates, but incremental increases wouldn't be enough to curb its inflation," said Hiroshi Fujimoto, a fund manager at Shinkin Asset.

"Exporters are falling on concerns profits will drop because of a stronger yen," he said.

Most analysts maintained the market was still showing signs of resilience despite Tuesday marking the thinnest day of trade this year and government data release before the start of trading Tuesday morning helped to buoy the mood.

The nation's industrial production in November grew a seasonally adjusted 1.0 percent from the previous month, marking the first rise in six months, preliminary government data showed on Tuesday.

The industrial production index stood at 91.8 in November against the 2005 base of 100, the data showed and November's increase, economists added, reveals that companies are beginning to boost their output on optimistic expectations for a rise in global demand next year, particularly from emerging markets and catalyzed by a stabilizing yen.

The government said output is expected to rise 3.4 percent in December and increase 0.7 percent at the beginning of next year to an estimated 3.7 percent in January.

"The market has so far shown little reaction to the industrial output figures, but this is clearly positive for the outlook," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.

"More positive data, which would signal an improvement in shipments and falls in inventories, could provide support to the electronics and machinery sectors," Yamagishi said.
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