Japan’s stocks slumped on concern a rebound in oil prices will increase fuel costs at manufacturers. Insurance companies surged on speculation a merger to create Japan’s biggest non-life insurer will ease competition. Mitsubishi Paper Mills Ltd. sank 5.8 percent after Israeli air strikes in the Gaza strip sent oil higher a second day. Sumitomo Rubber Industries Ltd. Japan’s No. 2 tiremaker by market value, declined 2.1 percent. Aioi Insurance Co. soared 14 percent on reports it may merge with two competitors. Elpida Memory Inc., the nation’s No. 1 chipmaker, rose 9.9 percent after saying it’s begun merger talks with Taiwanese semiconductor companies. The Nikkei 225 Stock Average slipped 100.92, or 1.2 percent, to 8,638.60 as of 12:41 p.m. in Tokyo. The broader Topix index fell 4.51, or 0.5 percent, to 842.07. “Should the situation in Israel persist, we’ve got to be ready for a resurgence in oil prices,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which oversees the equivalent of $6.1 billion. “Mergers are usually successful when the economy is in a slump, because businesses are more eager to achieve their shared goal: survival.” The Nikkei capped its third weekly gain on Dec. 26, trimming its slide in 2008 to 43 percent, its worst annual performance ever. Japan is mired in its first recession in six years, joining the U.S. and Europe in their first simultaneous contractions since World War II. Nineteen years ago today, the Nikkei reached its all-time high of 38,915.87 at the peak of Japan’s asset and equity bubble. Air Strikes On Dec. 26, Topix constituents traded 17.1 times estimated earnings for this fiscal year, nearing the 2008 high of 17.6 on May 15. The benchmark has risen 13 percent since reaching a 24- year low on Oct. 27, outperforming a 7.4 percent gain by the MSCI World Index. Mitsubishi Paper dived 5.8 percent to 210 yen, while Oji Paper Co., the nation’s largest consumer of high-sulfur fuel oil, sank 3.7 percent to 520 yen. The Nikkei newspaper reported on Dec. 27 that Oji is likely to post about 30 billion yen ($331 million) in pretax profit for the nine months to Dec. 31, almost unchanged from a year earlier as demand weakened. “Israel’s attack prompted investors to sell papermakers as their earnings will be directly hit by higher fuel costs,” Shinkin’s Fujiwara said. Crude oil for February delivery extended its gain to a second day, adding as much as 5.6 percent to $39.82 a barrel today. Israel called up reservists after two days of air attacks that killed more than 285 people in the Hamas-controlled Gaza strip. The Middle East produces almost a third of the world’s oil. Merger Hopes Sumitomo Rubber lost 2.1 percent to 731 yen, while market leader Bridgestone Corp. dipped 0.8 percent to 1,259 yen. About 60 percent of the material used in tires is oil based, according to the Japan Automobile Tyre Manufacturers Association. Inpex Corp., Japan’s No. 1 oil explorer, rose 3.7 percent to 647,000 yen, and closest rival Japan Petroleum Exploration Co. added 2.8 percent to 3,730 yen. A gauge of mining companies posted the sharpest climb among 33 Topix industry groups. Aioi surged 14 percent to 464 yen, the biggest winner on the MSCI World Index, while Nissay Dowa General Insurance leapt 11 percent to 558 yen. Mitsui Sumitomo Insurance Group Holdings Inc. advanced 4.1 percent to 2,775 yen. The three companies are in talks to merge, two people familiar with the negotiations said, confirming an earlier report by the Nikkei. The three insurers had 2.73 trillion yen in combined revenue from premiums in the year ended March 31, more than industry leader Tokio Marine Holdings Inc. Elpida, which has lost 85 percent this year, rose 9.9 percent to 568 yen, set for the highest close since Nov. 6. The company has begun merger talks with Powerchip Semiconductor Corp. and two other Taiwanese semiconductor companies to counter a glut that’s widening industry losses, Chief Executive Officer Yukio Sakamoto said in an interview on Dec. 26. Nikkei futures expiring in March fell 0.9 percent to 8,650 in Osaka and lost 1 percent to 8,645 in Singapore.

Source