* Nikkei speeds up slide after 9,200, near 50% retracement
* Next targets seen around 9,000, then 8,500
* Slow stochastic flattening, RSI just above 30
* China PMI figures adding to downward pressure -analyst
* Nikkei futures options gamma short -analyst
By Aiko Hayashi and Elaine Lies
TOKYO, July 1 (Reuters) - Japan's Nikkei average dropped more
than 2 percent below a key support to a seven-month trough on
Thursday, with market players citing a rise in risk avoidance
underscored by falls on Wall Street, a higher yen and slower
China manufacturing growth.
Market players said the Nikkei's next target is just above
9,000, a low tested in November and July 2009, after the index
broke 9,200, near the 50 percent retracement from the Nikkei's
March 2009 low to its high in April.
Charts were mixed, with the Nikkei's MACD continuing to slide
after a bearish cross, though its slow stochastic was flattening
in oversold territory.
A better-than-expected survey of domestic corporate
sentiment, the Bank of Japan's tankan, initially helped limit
declines but this effect faded after data for China's purchasing
managers' index, which fell to 52.1 in June from 53.9 in May.
"The market appears to have more room to fall even though
some technical indicators are overstretched," said Yutaka Miura,
a senior technical analyst at Mizuho Securities.
"It's hard to think the Japanese stock market will be able
reverse course and start climbing on its own. There needs to be a
halt to the advance in the yen and the falls in U.S. stocks.
Worries about a slowdown in the economy and strengthening in the
yen is working against exporters."
The benchmark Nikkei <> shed 2.3 percent to 9,170.12,
after falling 15.4 percent on the quarter to June 30, its worst
quarterly performance since the fourth quarter of 2008, just
after Lehman Brothers failed.
The broader Topix <> fell 1.8 percent to 826.21.
Japanese manufacturers turned optimistic about business
conditions for the first time in two years, the Bank of Japan
tankan survey showed, as solid exports to Asia supported the
country's economic recovery. []
On the technical front, the Nikkei remains under pressure
after its 50-day moving average fell through its 200-day moving
average, a formation known as a "death cross" that often signals
further falls.
But its relative strength index (RSI) came in at just above
30, falling closer to oversold territory from that level on down.
There are a large number of options on Nikkei futures at
9,200 and then 8,500, with one market player describing the
situation as "gamma short," meaning that traders need to follow
market moves in order to hedge their books and leading to selling
in a falling market.
"This is a situation where selling invites selling," said
Hideki Horikawa, senior adviser at Himawari Securities.
EXPORTERS AT MULTI-MONTH LOWS
Shares of exporters slid, with Sony Corp <6758.T> and other
high-tech stocks hitting multi-month lows, on worries about a
stronger yen and after U.S. stocks booked the worst quarter since
the market meltdown triggered by the collapse of Lehman Brothers.
Major Wall Street indexes all closed down more than 1
percent. []
In Asia trade, the dollar <JPY=> hit a two-month low around
88 yen on EBS.
Many Japanese exporters have set their currency assumption
rates for dollar/yen at around 90-95 yen for the year to March,
and investors fret about a stronger yen as it eats into
exporters' profits when repatriated.
Sony dropped 3.9 percent to 2,290 yen, after falling as low
as 2,288 yen, its lowest in seven months.
Separately, Sony said on Wednesday about 535,000 units of its
"Vaio" brand personal computers globally may be in danger of
overheating and that it has provided software on its website to
eliminate the problem. []
Kyocera Corp <6971.T> also fell more than 3 percent to hit a
seven-month low, while Advantest Corp <6857.T> slipped more than
4 percent its lowest in nearly a year.
Honda Motor Co <7267.T> fell more than 3 percent to hit its
lowest in about a year after Citigroup Global Markets Japan
lowered its rating to "hold/medium Risk" from "buy/medium risk"
and cut the target price to 2,720 yen from 4,170 yen.
Shares of Honda, Japan's second-biggest automaker, were down
2.9 percent at 2,522 yen after falling as low as 2,506 yen.
But Bridgestone Corp <5108.T> rose 1.9 percent to 1,441 yen
after Goldman Sachs hiked its rating on the tyre maker to
"neutral", citing higher-than-expected growth in tyre production.
Sumitomo Rubber <5110.T>, whose rating was hiked to "neutral"
as well, jumped 3.9 percent to 819 yen.
(Editing by Edwina Gibbs)
