(Adds stocks, details)
By Elaine Lies
TOKYO, June 12 (Reuters) - Japan's Nikkei stock average slid
2.3 percent to a two-week low on Thursday, battered as Canon Inc
<7751.T> and other exporters fell on a stronger yen and deepening
inflation worries, with banks slipping on renewed signs of
trouble in the U.S. financial sector.
Kawasaki Kisen <9107.T> and other shippers sank as freight
rates tumbled, while property developers also kept falling on
fears that interest rates could rise in the face of inflation.
One of the few initial bright spots was drugmaker Daiichi
Sankyo Co <4568.T> after saying on Wednesday it would take
majority control of India's biggest drugmaker, Ranbaxy
Laboratories Ltd <RANB.BO>, in a friendly deal worth up to $4.6
billion [], but even it finally turned negative.
"Until now Tokyo didn't fall sharply even when Wall Street
did, since there was a perception that Tokyo stocks weren't
vulnerable to inflation," said Masayoshi Okamoto, head of dealing
at Jujiya Securities.
"But with stagflation worries growing in the world it isn't a
good time to hold stocks, especially now that Japan itself seems
to be seeing inflation."
As oil shot up to approach recent highs and economic
uncertainty increased, investors turned defensive in the face of
growing risk.
"Basically, we're just seeing investors turning risk-averse,
especially after they bought the Nikkei up so high last week,"
said Tomomi Yamashita, a fund manager at Shinkin Asset
Management, referring to Friday's five-month closing high.
"If the market closes down today, that'll be a negative close
for three of four trading days this week, making it harder for
the market to recover."
So far this week, the Nikkei has lost 4.3 percent as the
feeling grows that Japan, too, is being hit by inflation.
The benchmark shed 321.78 points to 13,861.70, its lowest in
two weeks. The broader Topix <> was down 2.1 percent at
1,360.61.
INFLATION INCREASE?
"With Japan in a deflationary situation for ten years,
consumers began to think that falling prices were the norm, so
that even the comparatively small price rises we're seeing now
have an impact equivalent to much larger ones in the U.S,"
Jujiya's Okamoto said.
Banks slid, tracking falls in U.S. financials after the
Financial Times said Lehman Brothers <LEH.N> may look to raise
more capital, renewing worries about the U.S. financial sector.
Number 2 bank Mizuho Financial Group <8411.T> lost 3.5
percent to 530,000 yen, No.3 bank Sumitomo Mitsui Financial Group
<8316.T> was down 2.6 percent at 867,000 yen and top lender
Mitsubishi UFJ Financial Group <8306.T> fell 1.5 percent.
One of the biggest drags on the market was shippers. They
struggled as the Baltic dry index <.BADI>, which gauges the
strength of seaborne trade for dry commodities such as coal, iron
ore and grains, slid 2.7 percent on Wednesday for a fourth
straight day of losses.
Kawasaki Kisen tumbled 5.2 percent to 1,039 yen and Mitsui
OSK Lines <9104.T> fell 5 percent to 1,438 yen. Nippon Yusen KK
<9101.T> sank 4 percent to 986 yen.
Property firms such as Mitsubishi Estate Co Ltd <8802.T>,
Japan's second-ranked real estate developer, weighed on the
market due to worries about a future interest rate hike in the
face of inflation.
Mitsubishi Estate was down 3.5 percent at 2,465 yen, while
top developer Mitsui Fudosan Co Ltd <8801.T> slid 3.4 percent to
2,265 yen.
The dollar slid from a four-month peak against the yen on
Wednesday but had edged up in Tokyo by midday, with its earlier
weakness hitting exporters.
But the main worry is the U.S. economy, with Japan's heavily
export-dependent economy likely to suffer if consumption falls.
Canon slid 3.8 percent to 5,310 yen, Sony Corp <6758.T> fell
2.8 percent to 5,130 yen, and Honda Motor Co Ltd <7267.T> slid
1.8 percent to 3,730 yen.
Trade was moderate on the Tokyo exchange's first section,
with 1.1 billion shares changing hands, in line with last week's
morning average. Declining stocks beat advancers by 958 to 693.
(Editing by Brent Kininmont)
