Tokyo share prices are likely to face increased selling pressure next week, further dampened by the crisis in Iraq which hurt the bourse on Friday, dealers said.
"Due to the hostage crisis, market players, who have so far underestimated geopolitical factors, will start taking account of potential risks related to Iraq," said Masatoshi Sato, analyst at Mizuho Investors Securities.
"The crisis may not directly trigger massive selling next week, but it may be used as an excuse to take profits following the recent gain," Sato said.
The benchmark Nikkei index closed below 12,000 for the first time in four business days on Friday after news that militants were threatening to burn alive three Japanese civilian hostages if Tokyo did not withdraw its troops from Iraq.
"The market is in gloomy mood due to the hostage crisis, which could be a fatal blow to the administration of Prime Minister [Junichiro] Koizumi," said Fumiyuki Nakanishi, a broker at SMBC Friend Securities.
"Unless the crisis can be resolved without a hitch, Tokyo stocks are likely to fall or remain flat at best," Nakanishi said.
Japanese Prime Minister Junichiro Koizumi has insisted Japan has no plans to pull out its 550 troops from the southern Iraqi city of Samawa, where they are engaged in a humanitarian mission.
Some brokers said however the impact of the hostage crisis on the Tokyo stock market may be limited.
"Share prices will decline for a short period of time, but this will not last," regardless of how the hostage situation ends, said Norihito Fujito, senior investment strategist at Mitsubishi Securities.
"The kidnapping will be used for a couple of days, say, until Tuesday, as an excuse to make a correction to the rise in share prices, but after that the market will resume its upward momentum," Fujito said.
In the week just ended, the Nikkei-225 index of the Tokyo Stock Exchange rose 81.56 points or 0.69 percent to finish at 11,897.51 following a 0.38 percent gain the previous week.
The broader TOPIX index of all first-section issues gained 6.66 points or 0.56 percent to 1,190.86 after rising 0.67 percent a week earlier.
Daily transactions on Tokyo's major board averaged 1.90 billion shares worth 1.68 trillion yen (US$15.7 billion) in the past week, against 1.48 billion shares worth 1.43 trillion yen in the preceding week.
Among carmakers, Toyota gained 120 yen or 3.17 percent to end the week at 3,900 yen, and Nissan rose 39 yen or 3.36 percent to 1,190 yen. Honda rose 10 yen or 0.21 percent to 4,690 yen.
Electronics giant Toshiba gained 13 yen or 2.75 percent to 485 yen, with Sony up 70 yen or 1.62 percent at 4,400 yen.
Retailers ended mixed after major supermarket chain operators released earnings results for the fiscal year to February.
ItoYokado rose 40 yen or 0.84 percent to 4,800 yen as it announced on Thursday that its net profit rose 15 percent from a year earlier to 53.63 billion yen on improved convenience store and banking operations.
But rival Aeon lost 30 yen or 0.64 percent to 4,640 yen despite its announcement that it posted a record net profit of 55.32 billion yen amid signs of growing consumer confidence in Japan.
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