Nikkei hits 3-month low on China fears, then sheds most of the loss
* Worries about Chinese market hit China-related stocks * Nikkei tumbles 3.2 pct before regaining some ground By Hideyuki Sano TOKYO, July 9 (Reuters) - Japanese share prices dived to three-month lows on Thursday on fears about the state of the Chinese economy, but then much of the loss was erased as mainland stock markets changed course and rose. The Nikkei average fell as much as 3.2 percent to a three-month low of 19,115.20, while the broader Topix index fell as much as 3.6 percent to 1,526.09, its lowest since April 1. At midday, the Nikkei was down 0.7 percent and the Topic off 1.2 percent. Although Chinese share prices rebounded from lows on Thursday, helping Japanese shares to pare losses, some investors felt a recent 30-percent fall in mainland shares warranted a review on their rosy economic scenario. "A huge amount of wealth is wiped out, not just among Chinese investors but also global investors. People are underestimating the damage to the real economy," said Michiro Naito, executive director of equity derivatives and quantitative strategies at JPMorgan. "I would not be surprised if the Nikkei falls to 18,000," he added. For many investors who believed Japanese shares had strong support from buying by the central bank and public investors, and who have welcomed drives to boost shareholder returns, the latest fall came as a surprise. A fear gauge of investors, the Nikkei volatility index shot up to as high as 30.9 percent, its highest level since late April, almost doubling from a nine-month low of 16.4 percent hit less than three weeks ago. All of the Tokyo Stock Exchange's 33 industry subindexes were in the red, with shares perceived to have big exposures to Chinese demand hit in particular. Among them are tourism-related shares, which have benefitted from a weaker yen and a surge in Chinese tourists. Tokyo Disney Land Operator Oriental Land Corp fell as much as 6.1 percent to a five-month low. Traditional China plays such as Steel companies and shipping companies also took a beating, falling 1.6 percent and 2.2 percent respectively. Among them, Kobe Steel fell 3.2 percent and Nippon Yusen dropped 2.4 percent. Japanese margin traders, who had the biggest long position at the end of last week, are likely to dump their positions, said Yasuo Sakuma, portfolio manager at Bayview Asset Management. In the Mothers market for start-ups, where Japanese retail investors have big presence, the Mothers Index fell almost 10 percent at point. At midday, it was down 3.1 percent. (Editing by Richard Borsuk)
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