Nikkei drops to 2-week lows as U.S. bond yields soar, but bank stocks rise

  • Reuters
  • Stock Market News
Nikkei drops to 2-week lows as U.S. bond yields soar, but bank stocks rise
Credit: © Reuters.

* Regional banks soar on reform hopes

* Nikkei falls 1.4 pct for the week

* Tech shares fall, financials continue to rally

By Ayai Tomisawa

TOKYO, Oct 5 (Reuters) - Japan's Nikkei fell to its lowest close in two-weeks on Friday, tracking weakness on Wall Street as rising U.S. Treasury yields have dimmed the allure of most stocks except financial ones.

The Nikkei share average .N225 ended 0.8 percent lower to 23,783.72, the weakest close since Sept. 20. Earlier this week, the index traded above the 24,000 mark and hit 27-year highs.

The banking sector .IBNKS.T surged 1.1 percent on Friday and was the board's biggest gainer with Chiba Bank 8331.T surging 3.1 percent and Shizuoka Bank 8355.T 2.8 percent.

Japanese banks - and particularly regional ones - gained after advisers to Prime Minister Shinzo Abe presented a rough draft on policy ideas that included consolidation of regional banks.

But overall, analysts said the stock market had become overbought in a very short timeframe, leaving shares vulnerable to profit-taking.

"The Japanese market is in a difficult position," said Masayuki Doshida, senior market analyst at Rakuten Securities.

"Japanese shares tend to track strong performances in the U.S. where the economy is strong. But at the same time, when people become risk-averse on fears that many emerging market economies would suffer due to rising U.S. interest rates, Japanese shares are sold too."

Doshida said that when Japanese shares have matched gains in of U.S. ones, it is tough to expect further rises unless there's a positive factor specific to Japan.

He added that whether the Topix .TOPX , which has hit eight-month highs, can rally to new highs depends on first-half earnings. On Friday, the Topix dropped 0.5 percent to 1,792.65.

The Nikkei fell 1.4 percent for the week after posting three straight weekly gains, rising 7.9 percent in total.

U.S. Treasury yields kept climbing to multi-year highs on Thursday's latest round of strong U.S. economic data. Now the focus is Friday's September payrolls report. tech shares and suppliers to Apple Inc AAPL.O fell after their U.S. counterparts lost ground overnight.

Tokyo Electron 8035.T declined 2.6 percent, Advantest Corp 6857.T tumbled 4.1 percent and Murata Manufacturing 6981.T shed 3.9 percent.

Insurers and banks, which hunt for high-yielding assets such as foreign bonds, continued to rally after the yield on the U.S. benchmark 10-year note US10YT=RR hit 3.232 percent, making its largest one-day jump since the 2016 U.S. presidential election.

T&D Holdings 8795.T rose 1.5 percent, MS&AD Insurance 8725.T gained 1.2 percent and Mitsubishi UFJ Financial Group 8306.T added 1.2 percent. ($1 = 113.9400 yen)

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