Tokyo stocks fall 1.37% by break on Italy fears

Tokyo shares fell 1.37 percent Tuesday morning as the lack of a clear winner in Italian elections fuelled concerns over fresh eurozone instability, while profit taking also dragged the market lower.

The Nikkei 225 was down 160.22 points at 11,502.30 by the break as investors cashed in following a 2.43 percent rally in the benchmark index on Monday. The Topix index of all first-section shares slipped 0.64 percent, or 6.28 points, to 974.42.

Italy was headed for political gridlock Tuesday with a stalemate in parliament between right and left after critical elections in which the real winner might be a new protest party calling for a referendum on the euro.

The upstart Five Star Movement posted a shock victory, creating dozens of new lawmakers and turning into Italy's third political force, stoking fresh worries over Rome's commitment to austerity reforms.

"The situation in Italy can be extrapolated to carry larger significance in Europe," Yoshihiro Okumura, general manager at Chibagin Asset Management, told Dow Jones Newswires.

"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. Japan's path to stock-market friendly yen devaluation is still intact."

The Tokyo market has surged as the yen fell steeply in recent months, stoking criticism abroad, particularly in Europe, that Tokyo was engineering the fall to help its exporters. Japanese officials denied the claims.

The unit rose overnight but returned to its weakening trend on Tuesday, as reports said Japan would appoint a new central bank chief in favour of even looser monetary policy, which tends to drag down the value of the currency.

In morning forex trade, the dollar fetched 92.52 yen against 91.92 yen in New York on Monday, while the euro bought 121.09 yen from 120.12 yen.

In stock trading, Sony was down 2.31 percent to 1,309 yen while shares in Japan's number-two automaker Nissan slipped 2.02 percent to 921 yen.

Japan Tobacco lost 0.86 percent to 2,876 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 1.04 percent to 190 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.