TOKYO: Japan's Nikkei average slipped to a three-week low on Thursday, losing ground for a third straight day as violence in Libya prompted a spike in oil prices, setting the stage for a further correction in the near term.
The market mood was also soured by the yen's rise to a two-week high against the dollar, hurting exporters, and by capital-raising announcements by Tobu Railway and Toyobo Co that sent their shares tumbling on dilution fears.
Tokyo stocks had climbed some 14 percent since November to be one of the best performing global markets this year, and players said despite current weakness the market could still be on a rising trend longer-term.
"Investors knew all long that a correction was on its way after the rally, and the turmoil in Libya gave the market a good opportunity to enter one," said Makoto Kikuchi, CEO at Myojo Asset Management Japan.
Selling accelerated in the afternoon as the benchmark fell below support around 10,500, having broken another closely watched technical support at its 25-day moving average of 10,547 at open.
"Barring any further moves in exchange rates and sharp hikes in oil prices, the market will likely move between 9,800 and 10,500 until it starts rising again in mid-March," Kikuchi said.
Kikuchi said these levels, representing a roughly 5 to 10 percent retracement from the benchmark's year-to-date high of 10,857.53, would be typical for a healthy correction and any decisive moves below them on further oil price hikes would mean the long-term upward trend had changed. The Nikkei ended the day down 1.2 percent at 10,452.71. The broader Topix lost 1.3 percent to 934.22. The sell-off was underpinned by heavy volume, with 2.6 billion shares changing hands on Tokyo stock exchange's main board, above last week's daily average volume of 2.26 billion shares.
The spread of unrest from Egypt to Libya and the jump in oil prices to around $100 per barrel has helped pull the Nikkei off nine-month highs hit on Monday. Worries about further contagion to bigger oil exporters such as Saudi Arabia were expected to keep the Nikkei under pressure.
"Two crucial factors behind stocks' rally since November -- strong corporate performance and excess liquidity in global markets -- would come under unbearable pressure if such a scenario was realised," said Kenichi Hirano, a strategist at Tachibana Securities.
"The short-term support line has now moved to the benchmark's year-to-date low of 10,237.92," said Hirano.
CAPITAL RAISING
Equity financing deals by Tobu Railway and textile firm Toyobo Co weighed on their share prices and the prospect of more such deals also hit the broader market.
"The impact of the deals may be short-lived, but if there are more due to the recent recovery in the stock market, further falls are likely," said Yutaka Miura, a senior technical analyst at Mizuho Securities.
Tobu, a rail operator and property developer, tumbled 12.1 percent to 400 yen after it said it would raise as much as $1.1 billion in a share offering to buy back convertible bonds maturing in 2014. The offering could boost its outstanding shares by 25 percent.
Toyobo tumbled 8.8 percent to 134 yen after the firm said it would raise up to $227 million by offering new shares, increasing the number of outstanding shares by up to 18.7 percent.
It will tap overseas investors to fund an expansion of production capacity for industrial film used for flat panel displays and touch screen panels.
Overseas investors were net buyers of Japanese stocks last week for a 16th straight week, marking the longest buying streak since late 2005 to the early 2006.
Foreigners bought a net 621.3 billion ($7.5bn) of Japan stocks last week, during which the Nikkei hit a 9-month high, data showed, but market players said this may be the last week of foreign net buying as more foreign investors are likely to move into bonds in safe-haven buying.
Information services firm CSK Corp jumped 14.6 percent to 393 yen after the Nikkei business daily reported that Sumitomo Corp aims to buy a majority stake in it. Sumitomo's ACA Investments currently owns 36 percent of CSK's outstanding shares, making it the company's largest stakeholder, the Nikkei said.
Declining shares totalled 1,454, while just 159 advanced.
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