Nikkei drops 1% as hopes for aggressive U.S. rate cuts recede

  • Reuters
  • Stock Market News
Nikkei drops 1% as hopes for aggressive U.S. rate cuts recede
Credit: © Reuters.

* ETF funds' ex-dividend selling also weighs market

* Poor machinery orders also dampen mood

By Ayai Tomisawa

TOKYO, July 8 (Reuters) - Japan's Nikkei fell on Monday after an unexpectedly strong U.S. job data dampened market expectations for aggressive rate cuts this month.

Also denting the mood was weak domestic economic data. Japan's core machinery orders fell by the most in eight months in a worrying sign that global trade tensions are taking a greater toll on corporate investment. Nikkei share average .N225 ended 1% lower at 21,534.35 points.

After Friday's strong U.S. nonfarm payroll readings, traders have scaled back expectations the Federal Reserve will cut rates by a hefty 50 basis points at its next policy meeting on July 30-31. But they are still expecting a quarter-point cut. market's expectations on aggressive U.S. rates cut had been rising but the mood has changed over the weekend," said Takashi Ito, an equity market strategist at Nomura Securities.

Financial stocks bucked the weakness, after U.S. Treasury yields rose on Friday following the job report. Mitsubishi UFJ Financial Group 8306.T was up 0.1%, Mizuho Financial Group 8411.T added 0.6% and Dai-ichi Life Holdings 8750.T gained 0.2%.

Separately, the market was also pressured by selling related to passive funds' closing dates in early July, as most exchange-traded funds are going ex-dividend on Monday and Wednesday this week.

Since funds sell stocks to finance their dividend payouts, Daiwa Securities expected that there will likely be about 330 billion yen in selling for cash stocks and 300 billion yen on futures, on both Monday and Wednesday.

Fanuc Corp 6954.T and Komatsu Ltd 6301.T both dropped 0.9%.

The broader Topix .TOPX dropped 0.9% to 1,578.40.

(Editing by Kim Coghill)

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