Nikkei falls 1.2%, euro weighs on sentiment

Japan's Nikkei share average slipped more than 1% on Friday, backing further away from its 25-day moving average as investors fretted over the euro zone debt crisis and weakness in the single currency.

"For Japan's market participants, the euro rate as it is now reflects a deep-rooted, pessimistic view of Europe's problems, which remain very uncertain," said Ryota Sakagami, chief strategist of equity research at SMBC Nikko Securities.

The Nikkei fell 1.2% to 8,390.35, declining below its 25-day moving average at 8,500, and marking a 0.8% loss for the week.

The broader Topix dipped 0.9% to 729.60 as participants avoided risk ahead of a three-day weekend, with Japanese markets closed on Monday for a national holiday.

"We knew last year that Europe's problems were being pushed back to the beginning of this year and market participants remain worried about Italian and Spanish bond sales next week," said Yutaka Miura, a senior technical analyst at Mizuho Securities.

"It looks like the Nikkei will be weak for the time being in this environment."

The benchmark remained rangebound before the closely watched US nonfarm payrolls data due at 1330 GMT, with investors seeking further clarity on the state of the US economy.

The euro marked a 16-month low against the greenback and was trading at 98.71 yen on trading platform EBS, near an 11-year low hit on Thursday.

Shoji Hirakawa, chief strategist at UBS, said the impact of the euro's weakness on Japanese exporters' earnings was relatively small as the region accounts for only 5-10% of their total sales and profits, but that it was hurting market sentiment.

"In the case of a weaker euro, the stock market will suffer even if the material impact is small," he said.

Cyclicals like shippers lost heavily, with Japan's shipping subindex dropping 3.7%.

Continuing its losing streak, Elpida Memory shed 5.4% to 331 yen after Deutsche Bank cut its target price to 400 yen from 500 yen, citing a longer earnings recovery due to protracted market weakness and delays in reducing costs.

Dropping out

Shares of Olympus Corp seesawed, ending up 2.1% and reversing earlier losses after ousted CEO Michael Woodford said he was ending his three-month bid to return to the scandal-hit firm and replace the management.

"There are obviously many investors who think that even without Woodford, the company has such a strong market share (in endoscopes) that it has value as a possible (acquisition target)," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

Also heavily traded was Japan Bridge Corp, gaining 18.8% to 380 yen after a report on Thursday that the Metropolitan Expressway Company was planning to spend 1 trillion yen to upgrade its infrastructure.

The number of shares changing hands on the main board ticked up to 1.54 billion shares from Thursday's 1.26 billion. Declining shares outpaced advancers 1,152 to 354.