Roundup: Tokyo stocks tumble on China data, domestic capital spending weighs

Tokyo stocks tumbled Tuesday, with the Nikkei index dropping 3.84 percent as concerns about China's economy sparked a sell-off on Asian bourses dampening investor sentiment here and triggering a pervasive risk averse mood on the market.

The 225-issue Nikkei Stock Average plunged 724.79 points from Monday to close the day at 18,165.69, while the broader Topix index of all First Section issues on the Tokyo Stock Exchange plummeted 58.94 points, or 3.83 percent, to finish at 1,478.11, marking its worse monthly drop in three years.

Traders here said that stocks were negative from the get-go and retreated further into negative territory as investors digested news about China's manufacturing data and figures regarding firms' capital spending here.

Following news being released showing that China's manufacturing sector contracted at its fastest pace in three years, with the official Purchasing Managers' Index (PMI) dropping to 49. 7 in August from the previous month's reading of 50, the first time since February that the figure for large industrial businesses has fallen below the key boom or bust level of 50, investors took up defensive positions, they said.

Coupled with the data from the world's second-largest economy sparking concerns about a slowdown in growth despite recent efforts late last month by the People's Bank of China to cut its key lending rate by 0.25 percentage points to 4.6 percent to calm stock markets after a two-day global rout, data from Japan showing that capital spending in Japan had slowed in Q2 also contributed to a dour market mood, local brokers also added.

Capital spending by firms in Japan increased 5.6 percent on quarter in Q2 of 2015, the Ministry of Finance said in a report released Tuesday, but while spending by firms rose in the three months to June from a year earlier, the figure was a drop from the 7.3 percent pace logged in Q1 and well down on median economists' forecasts for an 8.8 percent increase, market players noted.

Not including firms' outlays on software, capital expenditure in this segment, which accounts for 90 percent of Japan's total, gained 6.6 percent in Q2, down from 8.1 percent logged in the previous quarter, the ministry also said, with the latest figure coming in below median analysts' predications for an increase of 10.9 percent and also contributing to investor consternation Tuesday, they added.

But while some analysts focused on China's economy as showing signs of weakening and hence investors here were in a risk off mood, others said that the PMI data was within expectations and investors were sealing in recent gains and selling was exacerbated by technical resistance points here.

"We know the Chinese economy is weakening, but we want to see how the deceleration impacts its major trading partners. Japanese shares jumped for three days last week, so it's possible those who bought over the last week want to take profits," said Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co.

But, Chihiro Ota, general manager of investment research at SMBC Nikko Securities Inc., said that the sell-off in the afternoon escalating was due to technical resistance points. " Selling spiraled in the afternoon as the Nikkei fell through technical resistance points," Ota said.

All industry categories lost ground on Tuesday, with Toshiba falling 5.3 percent to 363.5 yen after the engineering conglomerate, recently hit by a huge profit-padding scandal, opted to delay its revised earnings release, stating that it had uncovered a fresh accounting scandal.

Meiji Holdings tumbled 6.2 percent to 18,530 yen, while pharmaceutical maker Eisai relinquished 7.5 percent to close at 7, 653 yen.

It was a brighter day for Pioneer, however, who accelerated 2.7 percent to 226 yen following news it had developed a revolutionary 3D sensor system for automated driving vehicles.

Trading volume on Tuesday rose to 2.66 billion shares on the Tokyo Exchange's First Section, up from Monday's volume of 2.47 billion shares, with declining issues pummeling advancing ones by 1,837 to 47. Endi