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Nikkei slides as economic gloom grows

Japan's Nikkei average fell 3.9 per cent on Friday as Toshiba Corp plunged on NEC merger news.

Written by Reuters | Tokyo |
January 30, 2009 10:09:08 am

Japan’s Nikkei average fell 3.9 per cent on Friday as Toshiba Corp plunged on news it may merge some chip operations with NEC,while the yen’s advance and growing global economic gloom weighed on exporters. Dismal news hit a slew of other companies.

Nintendo Co tumbled after it cut its Wii game console sales target and profit forecasts,while Toyota Motor Corp fell after a source said its annual operating loss is likely to be bigger than the automaker’s latest forecast.

Worries about a deepening recession were fed by economic data released in both the United States and Japan,including Japanese industrial production falling a record 9.6 per cent in December and unemployment hitting a three-year high.

“The industrial production data was abysmal,and looking through the data in detail was quite a shock,” said Nagayuki Yamagishi,a strategist at Mitsubishi UFJ Securities.

“There’s so much inventory built up in a way we haven’t really seen before,” he added,noting that chip firms were likely to be hit especially hard.

US data showed the amount of people filing for unemployment benefits hit a record in mid-January,while orders for long-lasting goods fell for the fifth straight month in December and new home sales slid to a record low.

The benchmark Nikkei shed 315.05 points to 7,936.19,while the broader Topix lost 3.7 per cent to 788.40.

Toshiba,which tumbled 20.3 per cent to 307 yen,warned on Thursday that it would post its biggest loss ever this business year and said it may spin off some of its chip operations,a move that would make it easier to merge those businesses with another firm.

On Friday,a person with knowledge of the negotiations said Toshiba was in talks to merge part of its chip operations with the semiconductor unit of NEC as the two firms struggle with slumping demand and prices.

Market players had different views of the potential tie-up.

“It shows they can’t survive on their own. Despite some cost cut impact,it’s doubtful if they can beat their international rivals even as a team. The domestic chip industry appears on the brink of death,” said Fumiyuki Nakanishi,a manager at SMBC Friend Securities.

But others said the tie-up might be a good idea,noting that memory chip firm Elpida Memory is in consolidation talks with Taiwanese chipmakers.

Nintendo slipped 12.5 per cent to 23,050 yen after the videogame maker cut its operating profit forecast for the year ending March 31 by 16 per cent to 530 billion yen due to a firmer yen.

The yen advanced against the dollar,which had fallen to 89.34 yen by midafternoon after starting the day above 90 yen. A strong yen hits shares by eating into exporter profits when repatriated.

Toyota fell 5.1 per cent to 2,900 yen and Honda Motor Co lost 8.8 per cent to 2,075 yen.

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