Japan's banks feel the pressure

JAPAN'S bank stocks were the stars of the Tokyo equity market last year, aided by a recovering economy and a perception that their burden of bad loans was falling.

Investor support came also from a virtuous circle in which each rise in the wider market made the banks' own equity holdings worth more, prompting further gains in bank stocks.

Today some of the gloss came off that story as UFJ, the smallest of the Big Four lenders, denied a weekend report that its loan records were under official scrutiny.

The Financial Services Agency regulator was said to have learned that the situation at many of UFJ's corporate borrowers was worse than the bank maintained.

If true, that would suggest that the bad loans clean-up will take longer than had been assumed. Despite UFJ's firm denial investors were taking no chances. They thumped UFJ shares by 67,000 yen or 12.6% to 465,000 yen.

Bigger rivals were caught in the slipstream as Mizuho Financial was marked down by 12,000 yen or 3.7% to 314,000 and Sumitomo Mitsui Financial traded at 559,000 yen, lower by 26,000 yen or 4.4%.

Japan's finance stocks are volatile. The sector is a favourite with investors as a leveraged bet on the wider economy, making bank prices post large daily swings.

As UFJ went into damage-control mode today it delayed a $600m (£329m) international bond issue. The move would eliminate any confusion in the minds of investors, UFJ said.

Bank stocks have still made remarkable strides since they bottomed out in April last year. Mizuho, the world's biggest bank by assets, struck a low of 58,300 yen at that point, and UFJ scraped along at 85,200 yen.

Today the banking sector's woes weighed on the Nikkei 225, which closed 96.41 points down at 10,972.6.

Additional downside came from softness in tech shares, which took their cue from a lower Nasdaq at the tail-end of last week.

Advantest, which makes equipment that tests new chips, dipped 220 yen or 2.4% to 9,140, while chipmaker Tokyo Electron fell 290 yen or 3.6% to 7,790. Sony was also weaker as investors awaited its fourth-quarter earnings statement on Wednesday. Shares in the consumer electronics giant dropped 120 yen or 2.7% to 4,330.

Hong Kong's markets reopened after a four-day holiday weekend in honour of the start of the Year of the Monkey and ran straight into a bout of profit-taking. Global lender HSBC was the principal casualty, falling by HK$2 or 1.6% to HK$123.

Escaping the sell-down, developers eked out further gains after reports that sales of flats had gone well over the long weekend. Cheung Kong, listed flagship of billionaire Li Ka-shing, advanced 25 cents or 0.3% to HK$77.75.

Peer Sun Hung Kai Properties gained HK$1.50 or 1.9% to HK$79. The Hang Seng index shed 34.01 or 0.3% to 13,716.57 points.

Thai stocks saw deeper losses amid a welter of bad news on the outbreak of chicken flu. As troops were called in to bury infected flocks alive, the SET index dropped 8.69 points or 1.2% to 745.75, extending last Friday's dip.

South Korea's Seoul Composite index advanced as chipmaker Samsung Electronics hit a new high.

Brokers said that despite weakness elsewhere in tech stocks Samsung remained cheap, and it rose 26,000 won or 4.9% to 552,000. The lead index added 9.13 points or 1% to 870.5.