TOKYO: Tokyo stocks lost 1.55 percent Tuesday after Germany dampened expectations that the European Union would come up with a solution to the debt crisis at a summit this weekend.
The benchmark Nikkei index at the Tokyo Stock Exchange, which closed at a six-week high on Monday, fell 137.69 points to 8,741.91.
The Topix index of all first-section issues sank 10.64 points or 1.40 percent to 751.24.
The Nikkei dropped as "excessive expectations wane" for a far-reaching resolution to the eurozone crisis, said Hideyuki Ishiguro, supervisor at investment strategy at Okasan Securities.
Optimism had prevailed on Monday as investors expected that European Union leaders were set to hammer out a final deal to rescue debt-laden Greece from bankruptcy when they meet in Brussels on Sunday.
But Germany sought to dampen expectations. Government spokesman Stefan Seibert warned that "dreams that everything will be resolved and dealt with by next Monday cannot be fulfilled".
Meanwhile Germany's Finance Minister Wolfgang Schaeuble said that decisions would be part of "important measures to be taken over the long term, and this long term is likely to last into next year".
In a sign of an unabating crisis, ratings agency Moody's warned France in a report Monday that it may place a negative outlook on its cherished Aaa credit rating in the coming months as its financial strength "has weakened".
Kenichi Hirano, operating officer at Tachibana Securities, told Dow Jones Newswires: "It is this cycle that goes on day in and day out."
Investors are now awaiting further developments on the issue, said Yoshihiro Okumura, general manager at Chibagin Asset Management.
After the early morning drop, the Tokyo bourse essentially stayed flat for the rest of the day.
"Once European matters settle, focus will return to individual company fundamentals," he told Dow Jones Newswires.
Exporters with large business in Europe fell, with Canon dropping 1.72 percent to 3,410 yen and Sony down 1.18 percent at 1,588.
Olympus plunged 8.87 percent to 1,417 yen after losing about 40 percent in the past two sessions due to its uncertain business outlook after the abrupt ouster of its first non-Japanese chief.
A dispute has emerged between recently ousted company president Michael Woodford and other executives over the prices and advisory fees paid in a series of company acquisitions.
Shares of telecoms firm KDDI fell 4.28 percent to 558,000 yen after South Korea's Samsung Electronics said it had sought a preliminary injunction from the Tokyo District Court to ban sales of Apple's iPhone 4S in Japan.
KDDI recently won rights to sell the popular product, breaking Softbank's monopoly on sales. Samsung also seeks to ban iPhone 4S sales in Australia, France, and Italy as part of a legal tussle across 10 countries.
The device went on sale in Japan last week. Samsung's Japan filing cites infringements in technology and user interface patents.
Softbank shares were down 2.94 percent to 2,475.
The euro bought $1.3754 and 105.65 yen in Tokyo trade, marginally up from $1.3734 and 105.51 yen in New York late Monday.
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