Japan stocks follow U.S. lead

Japanese stocks continue to drop, driven by tech weakness

By Staff and wire reports

TOKYO, Japan -- Japanese stocks fell close to their 15-year low by midday Thursday, then rebounded. But they failed to respond to Wednesday's interest rate cut by the Bank of Japan.

The Nikkei ended the morning down 1.1 percent, or 138 points, at 12,746. It hit 12,660, approaching the 12,643 lowpoint set in November 1985.

The selling came on the heels of gloomy U.S. stock news. U.S. Federal Reserve Chairman Alan Greenspan's testimony before Congress suggested the Fed would not cut U.S. interest rates before its next meeting.

Japan's central bank's reserve board did its part to try to spark the economy with a surprise rate cut Wednesday night. It cut its key overnight money market rate for overnight lending to 0.15 percent from 0.25 percent.

It also cut the more symbolic discount rate to 0.25 percent from 0.35 percent. But analysts said Japanese borrowing costs, already low, would have to fall to zero before the market would respond.

Japan's central bank moved away from its policy of zero interest rates last August.

U.S. leading the way

All eyes were instead on the Nasdaq's slide. Nasdaq fell another 2.5 percent Wednesday, setting another two-year low.

Major high-tech stocks were down across the board after weaker-than-expected Japanese industrial output data Wednesday. But strategists said persistent weakness on Nasdaq was the overriding factor.

Furukawa Electric Co., Japan's top maker of optical fiber, plummeted 9.42 percent to ¥1,404 yen. That exacerbated a 10.25 percent plunge on Wednesday.

Semiconductor stocks such as Advantest Corp. fell 3.87 percent to ¥12,930. Chip and electronics maker NEC Corp. lost 4.09 percent to ¥1,831.

"Japanese equity investors also don't have confidence in the U.S. and Japanese economy," said Yamazaki Mamoru, Japan economist with Barclays Capital.

"Unfortunately, the Japanese economy now depends on U.S. economic trends," he added.

Though the U.S. markets would likely rise ahead of any economic rebound, economists predict that will not come until at least the second half of the year. Hopes of any Japanese recovery were undone Wednesday by unexpectedly poor industrial-production, housing-start and inventory numbers.

U.S. tech-related stocks have continued to stumble. Wednesday night, computer maker Gateway warned it would lose money in the first half of the year after taking restructuring charges.

Santa Clara, California-based 3Com also warned it would lose twice as much money as it had previoulsy announced in its thid quarter.

It expects to report a pro forma operating loss, excluding charges, of $235 million to $245 million. That's more than double its previous loss estimate of $80 million to $100 million.

Nikkei might test 12,000

Mamoru said any recovery in Japanese stocks would revolve around a rebound in the U.S. economy. He expects that in the second half of the year.

Meantime, though, he expects continued weakness in Japanese stocks, perhaps into May, he said.

Mamoru said he expects the Nikkei to test 12,000.

Prime Minister Yoshiro Mori said Thursday that Japan's economy remained fundamentally strong. He warned investors against overreacting to daily fluctuations.

Mori's opponents have long clamored for his resignation. Some Japan stock strategists believe the likelihood Mori will stay in office past his Liberal Democratic Party's conference March 13 has also hurt Japanese stocks.

Reuters contributed to this report.

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