Japanese stocks fell, dragging down the Nikkei 225 Stock Average by the most this month, on concern China will act further to slow inflation and as banks and steelmakers dropped after analysts cut investment ratings. TDK Corp., an electronics maker that gets more than 30 percent of its sales from China, dropped 3.9 percent. Nippon Steel Corp. and JFE Holdings Inc., Japan’s top-two steelmakers, fell at least 2.1 percent after Mizuho Securities Co. lowered its recommendations on the shares. Mitsubishi UFJ Financial Group Inc., the country’s largest bank by market value, slumped 1.2 percent following a rating cut at Credit Suisse Group AG. “Worries that China will raise the interest rate are increasing,” said Hideyuki Ishiguro, assistant manager at investment strategy department at Okasan Securities Co. in Tokyo. “People are worried growth in China would slow down if the country tightens its policies.” The Nikkei 225 fell 1.7 percent to 9,950.39 as of 1:50 p.m. in Tokyo, set for the first close below 10,000 since Nov. 17. The broader Topix index dropped 1.3 percent to 863.65, with about four times as many stocks retreating as advancing. Declines accelerated this afternoon as the Shanghai Composite Index in China, Japan’s biggest export destination, plunged 3.1 percent, and the yen strengthened against the euro, cutting the outlook for earnings from business in Europe. The Nikkei 225 rose at the fastest pace among gauges for the world’s 40 largest equity markets this month to yesterday, when it climbed to its highest close since June. This year it has fallen 4.6 percent, compared with gains of 6.5 percent for the Standard & Poor’s 500 Index in the U.S. and 3.3 percent for the Stoxx Europe 600 Index. Valuations, Economy Stocks in the Japanese benchmark are valued at 17.6 times estimated earnings on average, versus 14 times for the S&P 500 and 11.6 times for the Stoxx 600. Japan’s industrial production fell and the unemployment rate unexpectedly climbed in October, the government and the statistics office said today, providing early signs that the country’s economy will likely shrink this quarter. TDK, the world’s largest maker of magnetic heads for disk drives, tumbled 3.9 percent to 5,370 yen. Hitachi Construction Machinery Co., which is the world’s biggest maker of giant excavators and gets more than one-fourth of its sales in China, sank 3.4 percent to 1,901 yen, the steepest slide since June 7. Komatsu Ltd., a maker of earth movers that gets about 20 percent of its sales in China, retreated 2.3 percent to 2,321 yen. Inflation in China China needs to raise interest rates by another 200 basis points to curb inflation, given existing excess liquidity, Zhong Jiyin, an economist with the Chinese Academy of Social Sciences, wrote in a commentary in the China Daily today. China’s Purchasing Managers’ Index, a gauge of manufacturing, is scheduled to be released tomorrow. The yen appreciated to 109.99 against the euro today, near the highest level since Sept. 15. A stronger yen reduces the value of overseas income at Japanese companies when converted into their home currency. Steelmakers had the second-largest decline among the Topix’s 33 industry groups today. Nippon Steel sank 2.8 percent to 282 yen and JFE Holdings lost 2.1 percent to 2,677 yen. The companies were cut to “neutral” from “outperform” at Mizuho Securities, which said profit will miss forecasts in the fiscal year ending March. Sumitomo Metal Industries Ltd., which was reduced to “underperform” from “neutral,” slid 2.4 percent to 205 yen. The Nikkei newspaper reported, without saying where it got the information, that Japanese steelmakers may have to increase spending on raw materials by more than 50 billion yen ($590 million) for the January-to-March period from the current quarter because of rising prices of iron ore and coking coal. Banks Decline Rating cuts at Credit Suisse dragged down banks. Shinichi Ina, an analyst at the brokerage, lowered his recommendations on Mitsubishi UFJ, Mizuho Financial Group Inc., Sumitomo Trust & Banking Co. and Chuo Mitsui Trust Holdings Inc. to “neutral” from “outperform.” Mitsubishi UFJ slid 1.2 percent to 400 yen. Mizuho fell 1.5 percent to 133 yen. Sumitomo Trust retreated 2.8 percent to 444 yen. Chuo Mitsui dropped 2.7 percent to 294 yen. Nintendo Co., the world’s biggest maker of portable video- game machines, was the biggest support for the Topix. The stock jumped 3.3 percent to 22,710 yen, the most since Aug. 18. The company said it sold more Wii game consoles in the week including “Black Friday,” the Friday following the Thanksgiving holiday, so named because that’s when many U.S. retailers become profitable. To contact the reporter on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net. To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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