Japan deflation blunts Mizuho cuts

MORE signs that deflation continues to dog

Share prices hovered through much of the session as a surge in the shares of banking giant Mizuho lessened the impact of the latest grim data but failed to prevent a break back below 11,400 on the Nikkei 225 Average, which closed off 68.32 points at 11,370.21.

Other markets rallied as stronger employment figures from the United States lifted hopes that Asia's biggest export market was recovering. Japan's 20th consecutive monthly fall in wholesale prices was driven by falling demand for electronic parts and pressure on computer chips.

Bank lending fell 4.5% in May, as industrial investment continued to decline and consumer confidence remained at a low ebb. Although money supply grew by 3.5% in May, overall growth was down from 3.6% in April. The latest figures bolstered pessimism that the continued lack of investment would undermine the recovery of Japan's gross domestic product, which climbed at an annualised rate of 5.7% in the first quarter.

Investors found some encouragement in signs that Japan's slumbering banking sector was stirring, and was finally prepared to shake up its moribund infrastructure. Shares in Mizuho Holdings, the country's largest lender, jumped almost 4% on reports that it was getting set to slash salaries of its 30,000 workers and consolidate its sprawling branch network. Other bank shares followed Mizuho up on hopes that its move would be just the first dose of reality to be administered into the system.

Modest rises on Hong Kong blue-chips followed the US jobless reports, and helped the Hang Seng to a 4.1-points gain to 11,288.8. The overall rise was subdued by a fall of 50 cents to HK$93.75 in the shares of HSBC Holdings, which reflected weakness in London on Friday, but exporters with big exposure to the US rallied sharply.

Rises in the prices of computer-related shares in South Korea saw the market halve its recent 5% slide, and the Kospi surged 18.08 to 813.24. The rally in chipmakers was supported by strong rises in other exporters, led by Hyundai Motor, which rose almost 2% on hopes of rising demand from America.

Taiwan stocks also bounced back from recent lows on similar hopes. Market leader Taiwan Semiconductor made some modest gains, but the biggest mover was Nanya Technology, which supplies Dell Computers with memory chips, and rushed up to its daily limit of 7% after signing a new five-year sales contract. Growth of 9% in Taiwan's exports in May reinforced belief in its recovery, and the Weighted Average gained 63.66 to 5496.68.

Singapore's Straits Times index moved up 7.27 points to 1659.72 on a combination of bargain-hunting among blue-chips and stronger technology stocks. Thai stocks remained a favourite with foreign buyers, who lifted the SET 2.49 points to 419.82, but Jakarta's Composite slipped 2.73 to 511.30, and the Kuala Lumpur Composite was down 1.13 at 754.08. Australia's markets were closed.

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