Japanese shares fall after China's rate hike

16:53 | 20/10/2010

TOKYO, October 20, 2010  - Japanese shares dropped across the board Wednesday as investor worries heightened after China unexpectedly increased key interest rates, fueling fears of a global economic slowdown.

The Nikkei index of the Tokyo Stock Exchange lost 2.18 per cent or 207.59 points to 9,331.86 in morning trade. The Topix index of all first section shares fell 1.85 per cent or 15.42 points to 818.31 in the early session.

The market was keenly focused on China's announcement Tuesday that its central bank will raise its benchmark deposit and lending rates by 0.25 percentage points, the first increase since December 2007.

The news depressed Wall Street stocks overnight, and drove down Tokyo shares with strong links with China.

"We expect negative sentiment to remain in the short run, weighing on risk assets globally, as global markets are very sensitive to slowdown risk in the country that led the world out of recession," Credit Agricole Corporate and Investment Bank said in a note to clients.

In Tokyo, shares in construction equipment maker Komatsu fell 2.48 per cent to 1,927. Industrial robot maker Fanuc lost 2.80 per cent to stand at 11,100.

"The market may remain under pressure most of the day as many Japanese companies have benefited from China's consumption growth," Fujio Ando, senior managing director at Chibagin Asset Management, told Dow Jones Newswires.

Trading house Mitsubishi Corp fell 4.10 per cent to 1,966 during the morning session. Mitsui and Co. plunged 5.27 per cent to 1,259.

Among major shares, Toyota Motor lost 2.12 per cent to 2,864. Electronics giant Sony fell 1.52 per cent to 2,657.

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