The Nikkei stock average dropped 1% on Monday, as euro zone debt worries weighed on
markets before a crucial parliamentary vote in Greece this week, with investors fretting over fallout from the debt crisis in the banking system. Bank shares came under pressure as their peers in Europe were pummeled on worries they could suffer huge losses should Greece default, though they pared some declines in late trade on brokerage reports that a new capital requirement rule proposed by an international watchdog may be less stringent than previously thought.
"You still have Greek worries and rising interest rates in emerging markets seriously souring the mood in the markets," said Mattia Ciancaleoni, director of equity sales at Citigroup.
"This week is also heavy with lots of macroeconomic data releases, and many players are also afraid to make big bets ahead of the end of QE2 this week," said Ciancaleoni, referring to the Federal Reserve's $600 bln bond buying programme due to expire at the end of June.
The benchmark Nikkei fell 1.0% to 9,578.31, while the broader Topix index shed 0.9% to 825.64.
Bank shares, which led initial falls, recouped some of their earlier losses to outperform the overall market, helped by reports from some brokerages, such as Goldman Sachs and Nomura, that said a proposal by global regulators to impose an extra
capital charge on the world's biggest lenders would not be negative for Japanese banks.
"We view the release as incrementally positive for Japanese banks which stand at the thinner end of global capital levels, given a longer than expected lead time to build the requisite buffers," said Philippa Rogers, a Goldman analyst, adding that the move "reduces the worst case scenario of an up to 3% buffer, which the market (had) expected".
Mitsubishi UFJ Financial Group ended flat at 376 yen, while Sumitomo Mitsui Financial Group rose 0.2% to 2,404 yen.
They had fallen earlier in sympathy as European bank shares marked multi-year lows on worries that banks may be hit hard should Greece default, even though Japanese banks' direct exposure to Greece is limited.
HARSH AUSTERITY MEASURES
Market participants are thus still looking closely at whether Greece can avoid becoming the first euro zone country to default on its debt as it votes on a package of harsh austerity measures due on Wednesday and Thursday, with members of the public vehemently opposing any austerity measures.
Advantest and some other chipmakers fell, with some traders citing disappointing earnings from Oracle last week as hurting the sector.
Some carmarkers edged up, however, bolstered after Nissan said last week it would boost sales by 9.9% to 4.6 mln vehicles this year, despite disruption to production from the March 11 earthquake. The firm said after the close on Monday that it wants to raise its share of the global auto market to 8% within six years.
Honda Motors added 0.7% to 3,020 yen with investors saying they expected it to quickly catch up with Nissan, whose share price has returned to pre-quake levels. Honda's share price is still more than 10% below pre-quake levels while Nissan's is 3% higher.
Takashimaya Co bucked the trend and at one point rose to its highest in more than six weeks. It added 1.1% to 536 yen.
Japan's third-largest department store operator on Friday raised the operating profit forecast for its first-half to August 29 to 6.5 bln yen from an earlier prediction of a 1.5 bln yen loss, saying business had bounced back.
With the Nikkei having moved below its 13-week moving average at 9,596, strong support is next seen between 9,514 and 9,498 where the benchmark's index's 25-day moving average and the base of the Ichimoku cloud lie.
The Nikkei's drop was roughly in line with a 1% fall in Asian stocks outside Japan .
Trade volume on the Tokyo Stock Exchange's first section was 1.63 bln shares, below even last week's lacklustre average of 1.73 bln. Decliners outnumbered advancers by 1,122 to 418.
