Nikkei 225 Declines the Most in a Week on European Economic Concern, Korea

Japan’s Nikkei 225 Stock Average fell the most in more than a week after Standard & Poor’s cut Ireland’s debt rating, boosting concern that Europe’s debt crisis will slow a global economic recovery.

Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank by market value, dropped 2.2 percent. Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan’s three largest carmakers, fell more than 0.5 percent each as the euro weakened to a two- month low against the yen, damping the outlook for export earnings. Tokyo Electron Ltd., a maker of semiconductor equipment that gets 16 percent of its revenue from South Korea, retreated 2.1 percent after North Korea attacked South Korea yesterday, when Japanese markets were closed for a holiday.

“Unless it becomes clearer that things will improve, concerns will remain and that will slow investment activities,” said Koichi Kurose, chief strategist in Tokyo at Resona Bank Ltd., which manages about $57 billion.

The Nikkei 225 fell 0.8 percent to 10,035.37 at 12:33 p.m. in Tokyo, on course for its biggest drop since Nov. 12. The broader Topix index lost 0.9 percent to 867.91, with all but one of its 33 industry groups retreating.

The Nikkei 225 increased 9.9 percent this month through yesterday, the most among 88 national equity benchmarks tracked by Bloomberg. Stocks in the Japanese gauge are valued at 18 times estimated earnings on average, compared with 13.9 times for the Standard & Poor’s 500 Index in the U.S. and 11.8 times for the Stoxx Europe 600 Index.

Ireland Debt

Mitsubishi UFJ sank 2.2 percent to 404 yen and Sumitomo Mitsui Financial Group Inc., Japan’s No. 2 bank by market value, lost 2.3 percent to 2,595 yen. Toyota dropped 0.6 percent to 3,280 yen. Honda fell 1 percent to 3,090 yen. Nissan retreated 2 percent to 788 yen.

Konica Minolta Holdings Inc., a maker of imaging equipment that counts Europe as its biggest market, slumped 1.5 percent to 897 yen. Olympus Corp., an optical-instrument maker that derives more than 20 percent of its sales from Europe, lost 0.9 percent to 2,351 yen. Sony Corp., the maker of Bravia televisions and which gets 23 percent of its sales from Europe, retreated 1.7 percent to 2,883 yen.

Standard & Poor’s lowered its rating of Ireland’s debt by two steps today with a negative outlook, as the nation’s bailout of its banking system is set to escalate the government’s borrowing needs.

Yen Hurts Exporters

The yen appreciated to 110.75 against the euro at about 1:40 a.m. in Tokyo, its strongest level since Sept. 16. That reduces the value of overseas income at Japanese companies when converted into their home currency.

Tokyo Electron retreated 2.1 percent to 5,150 yen and was the second-heaviest drag on the Nikkei. Advantest Corp., which is the world’s biggest maker of memory-chip testers and gets more than 25 percent of its revenue from South Korea, slumped 1 percent to 1,700 yen. Shin-Etsu Chemcial Co., a maker of silicon wafers, lost 1.7 percent to 4,145 yen. South Korea is the home of Samsung Electronics Co., Asia’s biggest chipmaker.

North Korea fired artillery shells yesterday at the South Korean island of Yeonpyeong near the disputed border between the two countries, killing two soldiers and setting houses ablaze in the worst attack on its neighbor in at least eight months.

South Korea returned fire and scrambled fighter jets as President Lee Myung Bak vowed to respond “sternly.” The clash came 11 days after North Korea showed a uranium-enrichment plant to visiting U.S. scientists.

Korean Conflict

“Japan will be adversely affected because it’s right in the center of the conflict,” said Jamie Coutts, sales manager at the brokerage BGC Partners in Singapore. “North Korea has spoken about targeting Japan in the past. Any escalation in tensions over there directly affects Japan, probably more than any country in the region other than South Korea itself.”

Mitsubishi Corp., Japan’s biggest commodities trader, lost 1.3 percent to 2,118 yen. Mitsui & Co., which counts commodities as its largest source of profit, dropped 0.5 percent to 1,333 yen. Inpex Corp., Japan’s No. 1 oil explorer, sank 2.2 percent to 437,500 yen. Japan Petroleum Exploration Co. retreated 1.1 percent to 3,065 yen.

Crude oil for January delivery lost 0.6 percent yesterday in New York to settle at $81.25 a barrel, and copper futures dropped 1.1 percent. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum fell 1.6 percent yesterday. Gold futures jumped 1.5 percent, the biggest gain for a most-active contract since Nov. 4.

Sojitz Corp., a trading company, surged 9.7 percent to 169 yen after Japanese public broadcaster NHK said Sojitz agreed with Australia’s Lynas Corp. on a 10-year supply contract related to rare-earth metals.