Nikkei falls over 700 points, at over two-month low

By Ayai Tomisawa

TOKYO (Reuters) - Japan's Nikkei share average dived back into bear market territory on Thursday, dipping to levels seen before the central bank's sweeping monetary policy stimulus in early April, as the yen rebounded, sending shares of exporters tumbling.

Traders said the drop in both the Nikkei and the broader Topix to below their 100-day moving averages triggered stop losses, prompting more selling in index futures ahead of the settlement of June futures and options on Friday.

At the midday-break, the Nikkei was down 5.3 percent at 12,587.40 points after falling as low as 12,415.85, a level last seen before the Bank Of Japan announced aggressive easing on April 4.

The Topix dropped 4.1 percent to 1,051.67.

The Nikkei entered bear market territory for the second time in less than a week, having plunged more than 20 percent from a 5-1/2-year high hit on May 23. It had staged a short-lived rebound on Monday.

Analysts said sentiment was hurt by the yen's strengthening above 95 to the dollar, the upper limit of the 90-95 yen range at which many exporters have based their assumptions for their earnings this fiscal year.

A stronger yen erodes exporters' overseas earnings when repatriated and hurts their competitiveness by making their products more expensive.

"Whether the yen's strength will persist or not is a key. If it does, companies' earnings will be trimmed, and investors are extremely concerned that the incentive to chase the Japanese market higher will be erased," said Hiroyuki Fukunaga, the chief executive of Investrust.

On Thursday, the dollar fell to 94.85 yen, its lowest level since April 4.

"Investors are becoming risk averse on global assets," said Yasuo Sakuma, portfolio manager at Bayview Asset Management, adding that sentiment may remain weak as long as there are concerns about the Fed scaling back its stimulus measures.

After the BOJ bought 19.8 billion yen in exchange traded funds and 100 million yen worth of J-REITs on Wednesday to support the market, some market participants noted that there is some sense of security that if the market drops sharply, the Bank of Japan will step in to support the market.

But Sakuma argued that such efforts by the central bank may not have a long-lasting supportive impact.

"No matter what right thing the BOJ does, the positive impact won't last. Fundamental concerns are coming from overseas ... If the Fed decides to trim stimulus and once announced, the market will probably fall, then hit the bottom, and will rise again. Until then, sentiment will stay fragile," Sakuma said.

Exporters lost ground, with Toyota Motor Corp dropping 4.1 percent, Panasonic Corp falling 3.6 percent and Komatsu Ltd shedding 3.5 percent.

Softbank Corp nosedived 8.0 percent after Clearwire Corp's board urged shareholders to accept a tender offer from Dish Network Corp over an earlier deal with majority owner Sprint Nextel Corp to buy out the minority shareholders of the wireless service provider.

Softbank on Tuesday said it agreed to raise its offer Sprint Nextel to $21.6 billion from $20.1 billion as it fights off a counter bid by Dish Network.

(Editing by Jacqueline Wong & Kim Coghill)