Nikkei falls 1.6% after euro zone downgrades

Japan's Nikkei average shed 1.6% on Monday after Standard & Poor's stripped France of its prized triple-A status and cut the credit ratings of eight other euro zone countries, dealing another blow to the region's efforts to end the debt crisis.

Exporters fell as the news pushed the euro to near a 11-year low versus the dollar and a 16-month low against the yen.

TDK lost 2%, Canon dropped 2.1%, Konica Minolta fell 2.4% and Toyota eased 2.2%.

Financials were also came under pressure on concerns that the deepening euro zone sovereign debt turmoil would lead a banking crisis. Sumitomo Mitsui Financial Group shed 1.9% and Mitsubishi UFJ Financial Group fell 2.1%.

"The Nikkei's drop today is bigger than I expected, but I do think that the downside is limited for now," said Toshiyuki Kanayama, senior market analyst at Monex Inc, adding that the markets had expected the downgrades since December.

"But without seeing market reaction in US overnight it will be difficult for investors to buy."

The Nikkei average was down at 8,361.39, back below its 25-day moving average near 8,467 after closing above the technical level on Friday.

It also fell below the 61.8% retracement level of its rally from late November to early December near 8,364.

The broader Topix fell 1.6% to 723.25.

Olympus was down 3.5%. An industry newspaper said Toshiba was set to propose an equity tie-up with the scandal-hit camera and medical equipment maker.

Toshiba, which denied the report, lost 2.2%.