Nikkei pares losses as banks recover; eyes on Aiful

By Elaine Lies

TOKYO (Reuters) - Japan's Nikkei stock average slipped 0.7 percent on Friday, with financials hit after consumer finance firm Aiful Corp (8515.T) said it was asking for debt repayments to be rescheduled.

But large banks such as Mitsubishi UFJ Financial Group (8306.T) turned positive in later trade, buoyed by short-covering after sliding all week on worries about financial policy under Japan's new government and ahead of public holidays next week.


The new government's minister for banking, Shizuka Kamei, said this week he would like to introduce a moratorium on some loan repayments to help small and midsized businesses and individuals struggling from the economic downturn, sending bank shares lower.

But comments from Finance Minister Hirohisa Fujii on Friday that hinted at skepticism about such a plan helped investors take heart, market players said.

"Bank shares were really hit by political risk this week, after those comments by Kamei, and what we saw today was a bit of position adjustment ahead of the weekend, helped out by the finance minister," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

"It's not really as if anything's been settled, after all."

Overall though, trade was cautious ahead of a five-day holiday in Japan from September 19-23 and after the Nikkei finished above its 25-day moving average the previous day, analysts said.

"A lot of investors are adjusting their positions, with both profit-taking and short-covering emerging depending on individual shares and how they have behaved recently," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

The benchmark Nikkei .N225 pared its losses to 73.26 points or 10,370.54 after falling as much as 1.4 percent during the morning, and was down 0.7 percent on the week.

The broader Topix ended flat at 939.44.

FINANCIALS SHADOWED

"The Aiful news came as a slight shock ... and added to uncertainty in the sector that already existed about the new government's policies," said Kenichi Hirano, operating office at Tachibana Securities.

Aiful was untraded and ended the day at 134 yen, down 27.2 percent from Thursday's close after saying it would ask creditors to push back repayments on about $3 billion in debt as it faces difficulty raising funds and plans for more restructuring.

Rival lenders fell sharply, though some managed to pare losses by the close.