Tokyo stocks close down 2.26% on Italy fears

Tokyo shares dropped 2.26 percent Tuesday as an inconclusive Italian election result fuelled fresh concerns over eurozone instability, while profit-taking also dragged the market lower.

The Nikkei 225 lost 263.71 points to 11,398.81 as investors cashed in following a 2.43 percent rally in the benchmark index on Monday.

The Topix index of all first-section shares closed down 1.42 percent, or 13.93 points, at 966.77.

Italy headed for gridlock and financial markets tumbled with a stalemate in parliament between right and left after Sunday's election in which the big gainer was a new protest party calling for a referendum on the euro.

However, while the yen jumped against the euro and dollar on the news and the Nikkei fell, Yoshihiro Okumura, general manager at Chibagin Asset Management, told Dow Jones Newswires: "The situation in Italy can be extrapolated to carry larger significance in Europe.

"But the reality is that the continent's financial system is much more stable than when regional political events could trigger a panic-induced sell-off.

"Considering how far Japan stocks have come over a short period of time, today's pullback is no catastrophe."

The news from Italy checked a recent surge in the Nikkei, which has benefited from a weakening yen fuelled by deep monetary easing from the new Japanese government and central bank.

It also came under pressure on Monday on reports that the new government was to nominate a man to take over as central bank governor who is in favour of more aggressive monetary easing measures.

In afternoon forex trade, the euro bought 120.14 yen, compared with 120.12 yen late Monday in New York while the dollar was at 92.07 yen, from 91.92 yen.

In stock trading, Sony fell 3.73 percent to 1,290 yen while number-two automaker Nissan slipped 2.55 percent to 916 yen.

Japan Tobacco lost 0.72 percent to 2,880 yen after the government said it would sell about $10 billion worth of JT shares to help finance rebuilding expenses tied to the 2011 quake-tsunami disaster.

All Nippon Airways dropped 2.08 percent to 188 yen after it announced Monday it was grounding its Dreamliner fleet until at least the end of May, with no end in sight to Boeing's problems with its next-generation plane.