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Stocks

US-linked stocks take beating as market sours on economy

Investors fear Fed tightening could exacerbate apparent cooldown

TOKYO -- Investors pummeled Japanese businesses reliant on the U.S. market on Thursday, targeting such industries as rubber and machinery, as lackluster economic indicators and monetary tightening there stir concerns of an economic slowdown.

The Nikkei Stock Average showed some gains in the morning, but selling edged ahead as the day went on, and the index closed down 51 points at 19,831.82. Shares in U.S.-focused businesses led the drop.

Tire maker Bridgestone generates just under half its sales in the U.S., and its stock price slid 3% to close at 4,714 yen. Its competitor Yokohama Rubber, whose U.S. proportion is over one-fifth, saw shares dip nearly 6% to finish at 2,154 yen. Investors unloaded other businesses similarly dependent on America, such as machine tool maker Okuma and precision equipment maker NTN, both of which slid nearly 3%. One domestic securities broker noted that overseas investors were moving to sell off their cash stocks.

The U.S. Federal Reserve's latest interest rate hike did not itself spur strong reactions in yen exchange rates. But investors were rather turned off by the "unsatisfying content" of recent U.S. economic statistics, in the words of Shigeki Sakaki, chief strategist at Nomura Asset Management.

Seasonally adjusted U.S. retail sales for May, released Wednesday, fell 0.3% from the month before, missing market predictions of a 0.1% rise. The country's May consumer price index, reported the same day, likewise fell 0.1% on the month, disappointing expectations of a slight climb.

The news from the Fed salted the wound. On top of the interest rate hike Wednesday, the American central bank said it intended to raise rates one more time and start trimming its balance sheet this year, as well as to hike rates three times next year. Markets grew more anxious at the news, fearing, as Hideyuki Ishiguro from Daiwa Securities put it, that it "could lead to an economic slowdown in the U.S."

Given the recent strength in the U.S. economy, expectations were high here that turning up the pace of interest rate hikes would lead to a softer yen and higher stock prices. But uncertainty over the economy's prospects is now building, and investors are faced with a need to revise their outlooks for currency and stock prices.

Still, some remain bullish. "Now is the time to buy [shares in] export and resources companies for a bargain price," says Naoki Fujiwara, chief fund manager at Shinkin Asset Management.

(Nikkei)

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