Nikkei falls as yen slide slows, China shares dip

Japan's Nikkei average fell 1.1% in heavy trade today, surrendering earlier gains as the yen's retreat in the wake of prime minister Yukio Hatoyama's resignation slowed.

Declines in Chinese and other Asian shares also weighed down Tokyo stocks. Commodity shares were hit as metal prices sank on worries about China's economy.

Hatoyama, his ratings in tatters, said on Wednesday that he was stepping down along with his party's powerful No 2 executive in an effort to boost the ruling party's prospects in an election expected next month.

The news temporarily hauled the Nikkei out of the red and pushed down the yen against the euro and dollar, but the impact faded.

"The Nikkei bounced earlier, led by a rise in futures fuelled by a dip in the yen. But the momentum of the bounce was lost as the yen hasn't budged any further," said Yumi Nishimura, deputy general manager at Daiwa Securities Capital Markets.

The Nikkei ended down 108.59 points at 9,603.24 after rising as high as 9,763.41. It opened the day down more than 1% following Tuesday's slide on Wall Street. The broader Topix lost 1.1% to end at 870.05.

"The resignation of the prime minister was not a very big market-moving factor and the focus has drifted towards the decline in Chinese and Asian stocks," Nishimura said.

The Shanghai composite index fell 1.1% and the MSCI index of Asia Pacific ex-Japan stocks lost 0.9%.

"The euro hit a fresh trough against the dollar yesterday and is cooling market sentiment. When the currency will bottom out remains a key concern" for the stock market, Nishimura said.

Prime minister Hatoyama's resignation was greeted with a dash of optimism for the economy but also with a healthy dose of skepticism over whether a sea change in politics is likely.

"I don't think it's going to change anything much, the reason being that whoever it is going to be after Hatoyama will have to continue roughly his policies and will still face the same election in July," said Pascal Masse, head of the investment department at Aberdeen Investment Management in Tokyo.

"I think it's kind of the gamble they took to try and improve their standing before the election."

Trade was the heaviest this week with 2.2 billion shares changing hands on the Tokyo exchange's first section. Declining shares outnumbered advancing ones by nearly 4 to 1.

The market focus remained on the wobbly euro and the prospects for China's economy. Worries about the Chinese economy grew after the pace of factory output eased last month as gradual policy tightening took a toll on new orders.

Trading houses and smelters tumbled as metal prices dropped on worries about Chinese demand, with Shanghai zinc futures down by their 5% daily limit and copper also sliding.

Japan's largest trading house, Mitsubishi Corp, fell 3.8% to 1,954 yen and Dowa Holdings, a leading non-ferrous smelter, dropped 3.1% to ¥464. Trader Itochu Corp lost 3.4% to ¥719.

Other shares in firms with big operations in China also fell. Komatsu, the world's second biggest maker of earth-moving machinery, shed 2.6%, Hitachi Construction fell 3%, and Kawasaki Kisen lost 2.2%.