Nikkei hits 3-month low as Greece worries rattle investors

The Nikkei stock average fell to a three-month low on Friday as investors moved into safer assets with worries over Greece's debt problems compounding jitters that the global economy may be slowly headed for a sustained slowdown.

Tokyo stocks hit their lowest close since March 18, after selling in the euro intensified with investors largely unconvinced that Greece can dodge a debt default without more political stability in Athens. A contraction in factory activity in the US Mid-Atlantic region to a near two-year low in June added to the gloomy picture.

Market players noted a change in the Tokyo market mood, with a US broker seen aggressively selling Topix futures and speculative accounts detected actively entering the market from Thursday.

Investors also said that for the first time in a long time overseas players, including hedge funds, placed only sell basket orders on Friday amounting to as much as 21 billion yen.

"Investors are increasingly worried that the US economy is in more serious condition than just a temporary 'soft patch,'" said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Experts added that the consensus view now is that the US manufacturing problems were caused by more than disruptions prompted by the March earthquake in Japan.

"Until yesterday Credit Suisse, Newedge, and other overseas players covered their shorts in Nikkei futures, but since yesterday they increased their short positions," said Fujito.

Other traders also pointed to commodity trading advisers, which started selling when the euro fell below 114 yen.

The benchmark Nikkei closed down 0.6% at 9,351.40 -- its lowest close since March 18 -- while the broader Topix shed 0.9% to 805.34.

Analysts say the 9,300-9,350 area may serve as a strong support area, with the 9,333 line -- a 38.2% retracement of the 8,227-9,936 jump from the post-quake low until early May -- and the low of March 20 at 9,317 poised to support the Nikkei for now.

A break below opens the way to a drop to 9,122 -- a 50% retracement of the rise, while a longer-term possibility of a fall as low as the March 17 low at 8,639.56 cannot be ruled out over time, analysts said.

Volume picked up with 1.9 billion shares changing hands on the Tokyo stock exchange's main board, higher than Thursday's 1.79 billion shares and the average for the past six sessions.

Tax hike worries

Analysts said concern about tax hikes is adding to the market's sluggishness. The Mainichi newspaper reported this week that the ruling Democratic Party is considering raising both corporate and income taxes to pay back borrowing for reconstruction over a decade.

"It looks like tax hike debates are on the table, and this is not good for either foreign investor sentiment or consumer sentiment," said Hideyuki Okoshi, general manager at Chibagin Securities.

DeNA, a mobile phone gaming site operator, bucked the trend 3.5 percent to 3,240 yen after it raised its quarterly earnings outlook on Thursday.

It now expects to post a net profit of 9.2 billion yen for the April-June quarter, compared with a previously forecast 7.6 billion yen.

But shares of Sekisui House, Japan's largest homebuilder, tumbled 5.7 percent to 717 yen after it said on Thursday it would issue a 50 billion yen bond to help fund expansion in China and repay debt.

Facing a stagnant home market, Sekisui House needs to fund growth overseas to keep profits rising.