* Short-covering emerges after support held at 10,000-analyst
* But risk aversion still strong amid concern over regulation
By Elaine Lies
TOKYO, May 19 (Reuters) - Japan's Nikkei pared losses to 1
percent on Wednesday after earlier falling to its lowest in three
month, hit by worries about tighter financial U.S. and German
regulation that rattled markets and spurred selling of the euro
and other riskier assets.
Germany suddenly moved to ban naked short selling in some
securities and news that several Republicans will vote with
Democrats to wrap up debate on sweeping financial reform sent
U.S. stocks lower. [] []
In naked short selling, a trader sells a financial instrument
short, betting that its price will fall, without first borrowing
the instrument or ensuring that it can be borrowed, as would be
done in a conventional short sale.
"Under other circumstances, the naked short selling ban is
actually a move that might be taken positively by markets," said
Hideyuki Ishiguro, a strategist at Okasan Securities.
"What markets really wanted to hear from authorities,
especially in Europe, was some sort of statement strongly in
support of the euro framework. Instead, there was this -- and the
disappointment set off selling."
The benchmark Nikkei <> lost 111.27 points to 10,131.37
after earlier falling nearly 2 percent to 10,041.93, the lowest
since mid-February and well below its 200-day moving average of
around 10,350.
Ishiguro said that the morning's activity tested
psychological support at 10,000 and that short-covering emerged
after it held. Should this level break, the next support is
around 9,867, the year's low hit on February 9.
But he said, and others agreed, that the situation remained
volatile, particularly in regard to the euro.
"Germany's move to regulate naked short selling has
heightened uncertainty about the trading environment of financial
markets, leading investors to avoid risks," said Yumi Nishimura,
deputy general manager at Daiwa Securities Capital Markets.
A slight recovery in the euro after it fell to a four-year
low against the dollar also helped Japanese shares.
The euro was flat against the yen at 112.11 <EURJPY=R> and
had edged up minutely against the dollar to $1.290. But the
dollar was down 0.3 percent at 91.97 yen <JPY=>.
Investors fret about a stronger yen as it curbs exporters'
profits when repatriated.
Digital camera maker Canon Inc <7751.T> fell 1.3 percent to
3,925 yen, chip tester maker Advantest Corp <6857.T> lost 1.7
percent to 2,159 yen.
Banks pared losses as well. Mizuho Financial Group <8411.T>
was flat, Sumitomo Mitsui Financial Group <8316.T> lost 0.7
percent to 2,723 yen, and top lender Mitsubishi UFJ Financial
Group <8306.T> edged down 0.2 percent.
Japan's largest bank by assets said on Tuesday it had
returned to profit in the past year due to smaller writedowns,
but is targeting annual growth that is below market expectations.
[]
(Additional reporting by Aiko Hayashi; Editing by Joseph
Radford)
