Nikkei surrenders early gains, falls as China worries linger
* Nikkei, Topix both drop 0.9 pct at midday
* China central bank seeks to ease credit crunch fears
* Sentiment deteriorated after Shanghai extends slide
* Market to resume upward trend after July elections - Goldman Sachs
TOKYO, April 26 (Reuters) - Japan's Nikkei share average fell 0.9 percent on Wednesday morning despite China's efforts to allay fears of a credit crunch. Shanghai shares once again turned lower and were down 1.3 percent. "Worries over China's banking system and economy still weigh on the markets," said Hiroaki Hiwada, a senior strategist at Toyo Securities. "Also, (Federal Reserve Chairman Ben) Bernanke's comments continue to hurt investor sentiment." The benchmark Nikkei early on rose as much as 1.7 percent on robust U.S. data, Wall Street gains and a Chinese central bank statement, but the gains evaporated on new China concerns and the index ended the morning session 111.68 points lower at 12,857.66. Fears that the world's second largest economy was sliding towards a liquidity crisis sent Asian markets down on Monday and Tuesday. China's central bank said on Tuesday that it had given cash to some institutions facing temporary shortages and would continue to do so if needed, in a bid to assure markets.
"No one is sure whether the crisis is manageable by the Chinese authorities," said Masayuki Doshida, senior market analyst at Rakuten Securities. "Investors are nervously monitoring the Chinese markets." The broader Topix dropped 0.9 percent to 1,069.33 by the midday break, with volume at 31 percent of its full daily average for the past 90 trading days. All but three of the Topix's 33 industry groups dropped. The benchmark Nikkei has dropped 19 percent since reaching a 5-1/2-year high on May 23, hurt by slowing growth in China, fears of a pullback in the U.S. Federal Reserve's stimulus and disappointment over the Japanese government's recently unveiled growth strategy.
GOLDMAN UPBEAT ON LONG-TERM PROSPECTS Goldman Sachs, however, remained upbeat on the market, maintaining its 12-month Nikkei target of 17,000, 31 percent above Tuesday's close. "The Japanese market's current consolidation phase may persist until the July 21 Upper House elections," the brokerage wrote in a note. "But beyond the elections, the market is likely to resume an upward trend, driven by reform progress, additional policy stimulus measures, positive earnings surprises, and confirmation of a domestic macro recovery," it said. The Nikkei index is still up 24 percent this year, helped by Prime Minister Shinzo Abe's sweeping fiscal and monetary expansionary policies aimed at pulling the world's third-biggest economy out of a two-decade long slump.