Nikkei falls to 3-week low as oil prices tumble, strong yen hits sentiment
* Hedge fund money flow taking toll on Japanese market-analyst * Futures, options settlement Fri may spark volatility-traders * Topix all 33 sub-sectors fall By Ayai Tomisawa TOKYO, Dec 11 (Reuters) - Japan's Nikkei share average is set for a third day of losses on Thursday, hitting a more than three-week low after oil prices slumped, while a strong yen and poor machinery data dampened risk taking. The Nikkei benchmark dropped 2.0 percent to 17,069.70 in mid-morning trade after slipping as low as 17,043.63 earlier, the lowest since Nov. 17. It fell 2.3 percent on Wednesday. Brent settled down 3.9 percent at $64.24 a barrel after plumbing $63.56, its lowest since July 2009 on signs of oversupply and waning demand. Traders say that falling oil prices are positive for most advanced economies such as the United States and Japan as they are importers of oil, but weak oil prices are hitting some oil exporters particularly hard. They added that hedge funds, which make investments across asset classes including commodities, have faced headwinds this year and were taking profits from assets that have been rising. "In order to cover losses incurred by falling oil prices, hedge funds are reversing short positions on the yen and taking profits from markets and stocks that have been rising, including the Nikkei," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "Although falling oil prices are positive for Japan in the mid-to-long term, hedge funds' money flow is taking a toll on the Japanese market in the short term." Fujito said that news a big hedge fund was closing its commodities fund also added to concerns. A source told Reuters earlier this month that Brevan Howard, one of the world's biggest hedge fund managers, was shutting its commodities fund due to losses after a rout in the commodities market this year. Also hurting sentiment was Japan's core machinery orders, which fell 6.4 percent in October from the prior month, down for the first time in five months. Market observers said the market may stay volatile before Nikkei futures and options contracts settle on Friday. Exporters were sold after the dollar fell as far as 117.70 yen, continuing to pull back from a seven-year peak of 121.86 set on Monday. Toyota Motor Corp fell 2.1 percent, Sony Corp dropped 3.6 percent and Panasonic Corp slid 2.7 percent. Falling oil prices sent Inpex Corp and engineering company JGC Corp lower, which shed 3.0 percent and 3.2 percent, respectively. The broader Topix fell 1.4 percent to 1,387.39, with all 33 sub-sectors in negative territory. The JPX-Nikkei Index 400 declined 1.3 percent to 12,594.03. (Editing by Jacqueline Wong)
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