Wobbly Tokyo frets over growth

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First-quarter gross domestic product (GDP) figures to be unveiled in Tokyo could show whether foreign investors were backing the right market last month when they poured billions of yen into Japanese stocks on expectations that the country's economy was on a firm recovery path.

That assumption started looking questionable on Wednesday after news that capital investment in the first three months plunged 16.8%. As economists in Tokyo started reworking the GDP forecasts, the Nikkei 225 Average fell 88.93 points to 11,574.94.

The fall in investments, which took capital spending down to around half the level over the same period last year, saw banks and brokers surveyed by the Nihon Keizei Shimbun newspaper reduce their average forecast for the annualised growth rate in the first three months to 6.2%,from almost 8% two days ago.

Although this rate of growth would still underpin hopes that Japan was pulling out of the trough, poor GDP figures would disappoint foreign institutional investors who added 934.8bn yen (£5.1bn) worth of Japanese stocks to their portfolios in May. May's plunge into the markets took the value of overseas purchases in the three months to the end of May to 1.89 trillion yen, reversing heavy net sales in the previous quarter.

The prospect of slower-than-expected growth hit bank stocks as investors fretted that their bad debts would mount. After hitting six-month highs earlier this week, shares in the major banks stumbled, led by Mizuho Holdings, the world's largest lender, which lost 2%.

Early weak gains on the back of Wall Street's rise faded in Hong Kong, leaving the Hang Seng down 20.45 points at 11,381.93. Shares in the First Pacific telecoms-based conglomerate were the exception, and bounded 18% when trading resumed after a day's suspension following the announcement of an asset sale,which includes its controlling stake in Philippine Long Distance Telephone.

Shares in Taiwan's steel companies were spurred by a round of product price rises and the sector took the Weighted Average up 15.49 to 5614.91.

Australian investors refused to get excited by Wall Street's rise or the bullish outlook for their own economy provided by the central bank on Wednesday. The All Ordinaries dipped 9.4 to 3294.2, with resources stocks the main losers on concern over the strength of the Aussie dollar.

Thailand's SET index continued to gain despite some early profit-taking and added 6.80 points to 417.87. Singapore's blue-chips diverged, leaving the Straits Times index with a modest 2.98-points rise to 1656.98 on the back of firmer technology counters.

Malaysia's Kuala Lumpur Composite index rose 5.67 points to 752.60, but the Composite index in Jakarta drifted back 3.84 to 516.62. South Korean markets were closed.

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