TOKYO: The Nikkei average fell in thin trade on Wednesday and is likely to stay mired in recent ranges until investors are confident the euro zone crisis has been contained.
Olympus Corp jumped more than 11 percent as investors bought back its shares on hopes that the Tokyo bourse will not delist the scandal-hit company, while Elpida Memory Inc surged after a report that it will cut DRAM production to support prices.
Rising yields in European debt markets overnight suggested the region's woes are not over yet. The spreads of French, Belgian and Austrian 10-year bond yields over German Bunds all hit their highest levels since the euro's launch in 1999, while the equivalent Dutch spread hit its widest since early 2009.
Further fanning contagion fears, yields on Italian 10-year bonds climbed back above the key 7 percent level, widely deemed unsustainable, and Spanish borrowing costs rose ahead of the launch of a new 10-year bond on Thursday.
"Bad news keep coming out of Europe one after another and the market remains jumpy," said Toshiyuki Kanayama, senior market analyst at Monex Inc.
Kanayama said market participants were wary of the Oct. 5 low of 8,343, but hope that as long as the Nikkei does not drop to near the level seen in March 15 at 8,227.63 there is still an opportunity for a rebound.
Nikkei fell 0.7 percent to 8,480.46 in afternoon trade, while the broader Topix index shed 0.8 percent to 725.26.
Declining shares outpaced advancers, with almost five times as many shares declining as advancing.
The Nikkei had been in the process of forming an inverse head-and-shoulders pattern with the Oct. 5 level as the bottom, Nomura research analyst Shoichiro Yamauchi wrote in a recent report.
But as the benchmark has failed to break above the 8,600 level where the two shoulders would need to be positioned, the pattern may have broken down, meaning the Nikkei could test the Oct. 5 low and form a double bottom with that low, he said.
Similarly, the S&P 500 is flat for the year and trapped in a tight range, and US strategists say it could find tough technical resistance to a continued rise on Wednesday.
"The S&P is also in a range, and because the Nikkei often tracks that index, that is another factor weighing on the Nikkei from a technical point of view," said Yutaka Miura, senior technical analyst at Mizuho Securities.
OLYMPUS VAULTS, TOPS MAIN BOARD BY TURNOVER
Shares of scandal-hit Olympus were up 11.6 percent at 714 yen, after earlier jumping as much as 15.6 percent by their daily limit to 740 yen. The issue was the heaviest traded by turnover amid fading expectations that the company would be delisted by the Tokyo Stock Exchange. "As long as market participants think that Olympus will not be delisted, the stock will continue to rise. The market is buying back what they sold last week," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
Investors were expecting the stock to continue its climb as long as the company's successful endoscope business remains unscathed from the scandal, he said.
Olympus' lenders are set to meet company executives later on Wednesday but were not expected to demand changes in loan terms or take any abrupt steps, banking sources told Reuters.
Elpida Memory Inc added 9.7 percent to 362 yen after tumbling 9.1 percent on Tuesday, after the Nikkei business daily reported that Japan's biggest DRAM maker is considering further production cuts to prop up sagging prices.
Elpida was sold heavily on Tuesday as some expected the chipmaker to be removed from the MSCI's Japan index, a trader said, but regained losses after it remained on the list.
MSCI said late on Tuesday it would drop Mitsui Engineering and Shipbuilding Co, which shed 4.2 percent to 113 yen, as well as Minebea Co, which added 0.7 percent to 306 yen.
MSCI said it would add Sanrio Co, which fell 1.0 percent to 4,050 yen. The changes will take effect as of the close on Nov. 30.
Kyowa Hakko Kirin added 1.2 percent to 935 yen after it announced it will form a new business alliance with Fujifilm Holdings to develop cancer drugs.
Shares of Nisshin Steel Co gained 3.7 percent to 112 yen and Nippon Metal Industry Co was flat at 73 yen after the two companies announced on Tuesday they would merge by October next year.
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