Nikkei falls as yen strengthens against dollar on Fed’s rate hike prospects

The S&P 500 dropped 43.88 points, or 2.1 percent, to 2,035.73 and the Nasdaq composite lost 141.56 points, or 2.8 percent, to 4,877.49.

That slumping confidence is largely tied to uncertainty over China, the world’s number two economy, after the shock devaluation of the yuan last week added to fears that growth is slowing more than thought.

Stock markets around the world suffered further big declines Friday amid concerns over the Chinese economy and renewed uncertainty over Greece following the decision by Alexis Tsipras to resign as prime minister.

“Now players are concerned about not just external factors such as the Greek crisis or a speculative sell-off in China, but a deterioration in the real global economy”, Kenzaburo Suwa, strategist at Okasan Securities in Tokyo, said.

But the sell-off, traders said, was triggered by investor sentiment being damaged by worse-than-expected Chinese manufacturing industry purchasing managers’ index for August, released Friday by private firms, which created a dour market mood here.

The Topix index of all first section shares fell 1.74 per cent, or 28.33 points, to 1,595.55. The country, which earlier this week got its hands on the first tranche of cash from its third worldwide bailout, looks headed for another election on September 20 provided opposition parties can’t form a new government.

In share trading, China-linked issues lost ground, with Alps Electric falling 7 percent to close at 3,560 yen, while Fujikura relinquished 6.7 percent to end at 629 yen.

ENERGY: Worries over the scale of the slowdown in China weighed on oil prices too – lower growth equates to lower demand. U.S. crude futures were down 0.5 % at $42.41 per barrel, edging back towards a 6-1/2-year low of $41.35 struck on Friday.

The greenback traded on a weak tone around ¥123.40 in early trading, after coming under selling pressure overnight Thursday in New York, where stock prices tumbled and U.S. Treasury yields fell amid receding expectation for an interest rate hike by the Federal Reserve in the immediate future. The dollar sank against the yen and the euro.