Japanese stocks fell on Friday, dragged down by banks and property firms after the Bank of Japan's tankan survey showed corporate sentiment generally deteriorating.
Index heavyweights such as industrial robot maker Fanuc Ltd and chip-tester maker Advantest Corp gained as the same survey also showed companies are sticking to their robust capital spending plans, helping buffer losses on the tech-heavy Nikkei average.
The market has started taking notice of slower growth in the broader economy, Takahiko Murai, general manager of equities at Nozomi Securities. "Falls in property and bank shares symbolise that," he said.
The tankan headline figure showed sentiment among big manufacturers at a two-year low, reinforcing views that a rise in interest rates will be delayed to the second half of next year.
The tankan showed sentiment had deteriorated sharply among property companies.
"There were buying on machinery shares on good capital spending in tankan survey," said Kenichi Hirano, operating officer at Tachibana Securities. "But the overall outlook is bleak, investors cannot buy shares on that"
The Nikkei ended the session down 0.1 per cent at 15,514.51 after a volatile morning that saw it at one point up by more than one per cent. The broader TOPIX index lost 1 per cent to 1,501.25.
Nikkei futures and options contracts expiring in December likely settled at 15,513.61, the Osaka Securities Exchange said after the close.
The closely watched settlement price, known in Japan as the special quotation or "SQ", is calculated from the opening prices of the 225 shares on the Nikkei average on the second Friday of the month.
Trade jumped to 2.8 billion shares, buoyed by moves in connection with settlement of futures and options. Last week's daily average was 2 billion.
Declining shares beat advancers by nearly two to one.
Property shares hit
The quarterly tankan's index of real estate companies' sentiment for current conditions fell 13 points from September to 37 while the sector's outlook showed a 10 point fall to 27 in March.
Property shares were also hit by data released on Thursday by Japan's Real Estate Economic Institute showing the number of new condominiums put up for sale in the Tokyo area slid 43.6 per cent in November from a year earlier, as rising prices hurt demand.
Sumitomo Realty Development Co Ltd fell 4.7 per cent to 2,965 yen, Mitsubishi Estate Co fell 4.8 per cent to 2,600 yen, and Mitsui Fudosan Co slipped 4.8 per cent to 2,505 yen.
Tokyo's real estate index fell 4.5 per cent, the worst performing sector.
Banks slid on diminished chances of a rate hike and concerns about the subprime issue after the Federal Reserve's move in concert with other central banks this week failed to reassure investors.
Financial industry sources said on Wednesday that Mitsubishi UFJ Financial Group Inc, Sumitomo Mitsui Financial Group Inc and Mizuho Financial Group Inc had been approached for contributions of around $5 billion each to a subprime support fund.
"Japanese banks may be obliged to contribute to the fund, and that has spurred the selling," Nozomi's Murai said.
Mitsubishi UFJ lost 4.8 per cent to 1,074 yen, extending Thursday's losses, which saw it suffer its biggest drop in more than three years. Mizuho was down 4.9 per cent at 561,000 yen. Sumitomo Mitsui shed 3.1 per cent to 857,000 yen.
IHI Corp rose for the first time in five sessions and extended earlier gains after announcing its first-half results during the session. It ended up 9.8 per cent to 224 yen.
The troubled heavy machinery maker lost 16 per cent after it restated earings to show a loss for last business year and the Tokyo bourse put it in on a watch list that could lead to delisting.
"While there are still possibilities of delisting, investors picked up the stock with the sense that the worst news were over for a while," Tachibana's Hirano said.
Fanuc rose 2.4 per cent to 10,910 yen and Advantest gained 2.2 percent to 3,280 yen.