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[Tokyo] Tokyo investors next week will be keeping a close eye on Wall Street as they look for the bottom of the market after the benchmark Nikkei 225 index fell into a correction on Friday.
Japanese shares tend to take a strong lead from US stocks and dealers are keen to see if small-cap issues on Wall Street continue to gain momentum - often a sign of the market's future direction.
"It's possible that the movement is a signal that there will be a recovery in the overall market," said Makoto Sengoku, market analyst at Tokai Tokyo Research Centre.
"The market has come down and is now looking attractive. After a period of confusion, we might be at the beginning of the end for an adjustment," he added.
Investors will also be eyeing US corporate earnings and data including Chinese economic growth and Japanese trade figures next week.
On Friday, Tokyo stocks fell 1.40 per cent to close at a five-month low on Friday, hit by a stronger yen and growing concerns about the global economy.
The benchmark Nikkei 225 at the Tokyo Stock Exchange lost 205.87 points to 14,532.51, its worst finish since late May.
The index has lost more than 10 per cent since hitting a seven-year high of 16,374.14 just three weeks ago, suggesting the market is now in a correction phase. It lost 5.0 per cent this week alone.
"The Nikkei average was likely to continue to fret over the ups and downs of the Dow in New York," Daiwa Securities said in a note.
"If the Dow's adjustment were to wrap up... it could be a time for dip-buying." Tokyo's broader Topix index of all first-section issues was 1.53 per cent, or 18.28 points, lower at 1,177.22, marking a weekly loss of 5.3 per cent.
"The risk-off sentiment we're seeing now is global, affecting all stock markets," said Yutaka Miura, senior technical analyst at Mizuho Securities.
"If US stocks continue to see selling, there is little chance that Japan shares won't feel the pressure as well - at least until the next US Federal Open Market Committee meeting" slated for October 28-29, he added.
Shares in Japan Display, the world's biggest maker of screens for smartphones and tablets, slumped 8.07 per cent to end at 330.0 yen - after plunging more than 18 percent on Thursday - following a loss warning.
Temporary staffing firm Recruit Holdings rose 6.45 per cent to 3,545.0 yen, after surging 7.4 per cent on its market debut Thursday.
Toyota fell 2.51 per cent to 5,731.0 yen while Canon slipped 1.89 per cent to 3,180.0 yen.
In forex trading, the dollar was down at 106.16 yen, from 106.33 yen in New York Friday. AFP