(Updates to midday)
By Aiko Hayashi
TOKYO, May 9 (Reuters) - Japan's Nikkei stock average fell
0.9 percent on Friday, dragged down by Toyota Motor <7203.T>
after the world's biggest automaker forecast its first annual
profit decline in seven years, while a stronger yen weighed on
other exporters.
Olympus Corp <7733.T> skidded 5.5 percent to 3,270 yen after
Credit Suisse cut its rating to "neutral" from "outperform",
saying the firm's earnings outlook was a negative surprise.
Toyota dropped 2.9 percent to 5,320 yen, with its outlook
seen as negative news for the auto industry.
"Investors have become wary about earnings by other
automakers," said Katsuhiko Kodama, a senior strategist at Toyo
Securities.
Toyota posted a bigger-than-expected 28 percent drop in
quarterly net profit due to a stronger yen and sliding U.S.
sales, and expects this year's net profit to sink 27 percent to
1.25 trillion yen ($12 billion), its first fall since 2002.
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The benchmark Nikkei average <> ended the morning
session down 127.58 points at 13,815.68, while the broader TOPIX
index <> shed 1.1 percent or 14.35 points to 1,358.60.
Market analysts said the Japanese market is ready to take a
breather as the Nikkei average has gained nearly 20 percent from
the year-low hit on March 17 on the belief that the worst of the
credit crisis may be over.
"The rebound in Japanese stocks on the view that they were
undervalued is over for now," said Kodama at Toyo Securities.
"Investors don't want to keep pushing for a level above 14,000
for the Nikkei average when it's trading at a price-earnings
ratio of above 16 times."
Koichi Ogawa, chief portfolio manager at Daiwa SB
Investments, said stocks had been overbought in the past months
and the market needs to seek a support level around
13,500-14,000.
"Investors won't keep buying stocks so that the Nikkei
surpasses those levels until they see if companies revise up
earnings forecasts in July or August," Ogawa said.
TOYOTA DOWN
Among automakers, Honda Motor Co Ltd <7267.T> lost 3.6
percent to 3,220 yen and Nissan Motor Co Ltd <7201.T> fell 0.5
percent to 955 yen.
Daiwa SB's Ogawa said the fall in Toyota shares was limited
as investors appear optimistic that the automaker will lift its
full-year earnings forecasts in the summer as they are rather
conservative.
"At the moment, Toyota is assuming the worst possible
scenarios, including its currency assumption, its American sales
and the possibility of transfering materials costs onto its
products, when its sales are solid outside the U.S.," he said.
Exporters generally came under pressure as investors fretted
over a stronger yen, which eats into the value of exporters'
overseas sales when translated back into the Japanese currency.
Canon Inc <7751.T> declined 2.4 percent to 5,270 yen and
electronic component maker TDK Corp <6762.T> gave up 3.4 percent
to 7,010 yen.
Toyota is now assuming an average exchange rate of 100 yen to
the dollar and 155 yen to the euro <EURJPY=R> for this business
year. The dollar averaged around 114 yen last year and the
company says each 1 yen gain against the dollar cuts annual
operating profit by about 40 billion yen.
The dollar edged down to 103.60 yen on Friday, after slipping
0.7 percent to 103.90 yen <JPY=> in late U.S. trade.
One bright spot was Japan Tobacco Inc <2914.T>, which jumped
4.4 percent to 496,000 yen, after the world's No.3 tobacco maker
said it may raise the price of domestic cigarettes to account for
high raw materials costs and help offset sluggish demand.
[]
Trade picked up on the Tokyo exchange's first section, with
971 million shares changing hands, compared with last week's
morning average of 842 million.
Declining stocks outnumbered advancing ones by 2 to 1.
(Editing by Brent Kininmont)
