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Japanese stocks end weaker, track Wall St losses

TOKYO: Japanese stocks finished weaker on Tuesday, tracking broad losses in New York stocks overnight on signs that aggressive US interest rate hikes may loom ahead.

The benchmark Nikkei average fell 161.18 points or 0.85 percent to 18,895.53, dragged down by profit-taking in steelmakers and other domestic demand-related shares. The March Nikkei futures contract fell 120 points to end at 18,930.

But losses in key high-technology shares were limited, as investors held on to expectations they will be bought heavily for inclusion in new investment trusts scheduled to be launched this week and next.

"New York stocks did badly and that hurt sentiment," said Hiroshi Sato, equities and bonds manager at Cosmo Securities. "But the market is still hopeful that demand will return to high-tech stocks due to investment trust buying." Overnight, the Nasdaq Composite index fell more than three percent and the Dow Jones industrial average .around two percent, as investors sought refuge in government bonds.

The losses were sparked by comments by Federal Reserve Bank of Atlanta President Jack Guynn, also a voting member of the rate-setting Federal Open Market Committee (FOMC), that he did not see many signs that the Fed's three interest-rate hikes in 1999 were slowing consumer demand.

Traders said that while Japanese stocks would remain sensitive to US market moves, they were showing some resilience to the prospect of an extended correction on Wall Street.

The FOMC is scheduled to meet next Tuesday and Wednesday to decide whether to raise interest rates. Market players have said a 25 basis-point hike has been factored into the market already, but a steeper hike could trigger more losses in US equities.

"The Tokyo market is still in the process of factoring in both a substantial (US) interest rate hike and a subsequent fall in US stock prices," said a strategist at another Japanese brokerage.

"But I think healthy demand from new investment trusts should help Japanese stocks weather such a scenario."

The March Nikkei futures contract: fell 210 points to 18,840.

But traders said that with the Japanese economy clearly at a different stage from the United States, investors may appear on dips to hunt for value in the Tokyo market.

"We cannot help but be affected by overnight falls in US stocks and retain a weak tone during the morning," said Kunihiro Hatae, general manager at Tokyo Securities Co's equities trading division.

"But buying interest has broadened recently from high-tech issues to others such as steelmakers. This tendency is likely to continue and will probably keep a solid floor at around 18,800 for the Nikkei," he said.-Reuters