Japan's Stocks Drop on `Uncertain' U.S. Outlook, Stronger Yen

By Patrick Rial

Oct. 19 (Bloomberg) -- Japanese stocks fell after profit at the second-largest U.S. bank trailed analyst estimates, sparking concern the outlook for the world's largest economy is worsening, and after the yen surged against the dollar.

Nomura Holdings Inc., Japan's biggest brokerage, and Honda Motor Co., which generated 55 percent of its sales from North America last year, led declines. Bank of America Corp. said yesterday about $4 billion in trading losses, defaults and writedowns caused third-quarter profit to fall 32 percent.

``The biggest factor confronting the market right now is the uncertain outlook for the U.S.,'' said Soichiro Monji, who helps oversee $47 billion at Daiwa SB Investments Ltd. in Tokyo. The Nikkei 225 Stock Average could fall below 17,000, Monji said.

The Nikkei 225 Stock Average fell 233.77, or 1.4 percent, to 16,872.32 as of 9:24 a.m. in Tokyo. The broader Topix index slumped 22.57, or 1.4 percent, to 1,595.18.

For the week, the Nikkei has lost 2.7 percent, set for its first drop in six weeks. The Topix has fallen 3.9 percent, the worst performance since the week ended August 17.

Mitsui & Co. led gains by oil-related shares after the price of crude rose to a record.

Nomura slid 50 yen, or 2.5 percent, to 1,934. Mitsubishi UFJ Financial Group Inc., the nation's largest publicly traded bank, slumped 29 yen, or 2.8 percent, to 1,011. Mizuho Financial Group Inc., Japan second-largest, declined 22,000 yen, or 3.5 percent, to 608,000.

U.S. Earnings

Bank of America said yesterday net income dropped 32 percent to $3.7 billion in the third quarter as the company set aside 2.03 billion in the quarter to cover bad loans amid the worst U.S. housing slump in 16 years. The company's shares fell 2.4 percent.

Elsewhere, Washington Mutual Inc., the largest savings and loan institution in the U.S., tumbled 7.7 percent after at least three analysts recommended investors sell the stock in the wake of the company's Oct. 17 announcement that it may have to set aside as much as $2.9 billion this year to cover credit losses.

Stocks also dropped after the number of first-time claims for unemployment benefits in the U.S. increased by the most since February to 337,000.

Honda, Japan's No. 2 automaker, fell 60 yen, or 1.6 percent, to 3,820. Canon Inc., which generated almost 75 percent of its sales from overseas last year, tumbled 160 yen, or 2.6 percent, to 5,940. Sony Corp., the maker of the PlayStation 3 game console, lost 100 yen, or 1.8 percent, to 5,330.

The yen recently traded at 115.38 against the dollar, from 116.56 at the close of trading yesterday in Tokyo. A stronger yen decreases the value of Japanese exporters' dollar- denominated sales when converted into the local currency.

Record Oil Price

Mitsui & Co., Japan's second-largest trading company, added 20 yen, or 0.7 percent, to 3,030. Inpex Holdings Inc., the nation's biggest oil explorer, climbed 20,000 yen, or 1.6 percent, to 1.29 million. Crude oil for November delivery rose 2.4 percent to $89.47 a barrel in New York, a record close.

Kirin Holdings Co. advanced 36 yen, or 2.3 percent, to 1,602. The brewer said it's in talks to acquire drugmaker Kyowa Hakko Kogyo Co. which was valued at 480 billion yen ($4.2 billion) at yesterday's closing price. Kyowa Hakko was untraded with the shares bid 5 percent higher to 1,262 yen.

Acom Co. was also untraded with the stock bid 7.1 percent higher to 2,400 yen. Japan's second-largest consumer lender by market value boosted its full-year forecast for operating profit, or sales minus the cost of goods sold and administrative expenses, by 63 percent to 49.4 billion yen.

Nikkei futures expiring in December fell 1.3 percent to 16,890 in Osaka and declined 1.2 percent to 16,895 in Singapore.

In other Asian markets open for trading, Australia's S&P/ASX 200 Index slid 0.9 percent and South Korea's Kospi index lost 1.1 percent.