Japan's Nikkei leads world markets lower

[August 24, 2010]  LONDON (AP) -- Japan's Nikkei index led world markets lower Tuesday as the yen's rise to a fresh 15-year high against the dollar and a nine-year best against the euro hit the share prices of the country's high-value exporters.

In Europe, the FTSE 100 index of leading British shares was down 60.65 points, or 1.2 percent, at 5,174.19 while Germany's DAX fell 56.73 points, or 0.9 percent, to 5,954.18. The CAC-40 in France was 47.73 points, or 1.3 percent, lower at 3,505.50.

The retreat in Europe came after many of Asia's markets closed lower. Japan's Nikkei index led the declines, closing down 121.55 points, or 1.3 percent, at 8,995.14 -- slipping under the 9,000 level for the first time since May 2009.

The main reason behind the Nikkei's drop was the rise in the yen -- by mid morning London time, the dollar was 0.7 percent lower at 84.36 yen, just above its earlier 15-year low of 84.17 yen, while the euro was 1.1 percent lower at 106.47, a little up from its earlier nine-year low of 106.20 yen.

The worry is that the rising yen will make Japanese exports less competitive in the international marketplace and limit already paltry economic growth. Figures last week showed that Japan grew by a tepid 0.1 percent quarterly rate in the second quarter, allowing China to overtake the country in terms of economic output for the first time ever.

The scale of those concerns were evident in the performance of Sony Corp., which closed down a whopping 3.7 percent.

With Japan's economy under pressure and the U.S. recovery losing momentum, investors are getting increasingly worried that the global economic recovery has run its course -- the yen is widely considered one of the safest assets to hold and therefore advances when investor appetite for risk declines.

Japan's policymakers will be under pressure to do something about the yen's continued appreciation, though the absence of any talk of intervention in Monday talks between the Bank of Japan and Japanese Prime Minister Nato Kan indicates that nothing is afoot.

"Maybe the weakness in the Nikkei might concentrate their minds," said Neil MacKinnon, global macro strategist at VTB Capital.

Though the dollar has fallen against the yen, it continues to advance against the euro -- in the ranking of safe haven assets, the dollar is viewed more highly than the euro. By mid morning London time, the euro was down 0.2 percent at $1.2616, far below the four-month high of $1.3333 it hit less than three weeks ago.

With little economic news around the world and trading activity still light -- the average daily volumes in August on the Standard & Poor's 500 index in the U.S. is the lowest since 1999 -- stock markets could well remain choppy.

The key focus later Tuesday will be U.S. existing home sales data for July and investors will be interested to see if the headline figure falls again following the big drop recorded in June.

The main point of interest this week will be Friday's latest speech on the state of the U.S. economic recovery from Federal Reserve Chairman Ben Bernanke. His speech will come in the aftermath of the latest estimate for second quarter U.S. economic growth -- a number of economists think that the 2.4 percent annualized growth previously estimated will be reduced, possibly to as little as 1.5 percent.

Worries about the U.S. economy are set to dominate when Wall Street opens later -- Dow futures were down 73 points, or 0.7 percent, at 10,084 while the broader S&P 500 futures fell 9.5 points, or 0.9 percent, to 1,056.10.

Uncertainty about the U.S. economy in particular also weighed on oil prices. Benchmark crude for October delivery was down 79 cents at $72.31 a barrel in electronic trading on the New York Mercantile Exchange.

Elsewhere in Asia, Hong Kong's Hang Seng sank 1.1 percent at 20,658.71, South Korea's Kospi fell 0.4 percent to 1,760.53 and Australia's S&P/ASX 200 dropped 1.1 percent to 4,381.30.

[Associated Press; By PAN PYLAS]

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