Tokyo stocks slid on Friday despite overnight gains in the US, as new data pointed to a slowdown in Japan’s service sector. 
    The Nikkei 225 average dropped for a second day, falling 0.9 per cent to 11,187.33, while the Topix index fell 0.8 per cent to 1,135.29.
The decline broke a close correlation between the Tokyo and New York markets. Japanese stocks, notably in the technology sector, had swung up and down in line with the US earlier in the week, but kept falling on Friday even though Wall Street had perked up.

    News that Japan’s index of service sector activity had dipped 1 per cent in May from the previous month weighed on shares, although economists said the fall was not grave as it followed two months of big gains.

The figure nonetheless dealt a blow to retail shares, pushing supermarket group Aeon down 1.3 per cent to Y3,850. Mitsukoshi, a department store, was 0.9 per cent lower at Y528 and Ito-Yokado, the country’s biggest retailer, dropped 2 per cent at Y4,370. 
    Sojitz, an ailing trading house that is one of UFJ’s biggest borrowers, jumped 6 per cent to Y477 on unconfirmed reports that the group would receive a Y250bn capital injection. The Nihon Keizai newspaper said the funds would come from UFJ and its proposed merger partner MTFG, and from UBS, the European financial group. 
    UFJ fell 1.6 per cent to Y446,000 and MTFG was off 3.7 per cent at Y1,050,000. Among UFJ’s other big borrowers, Daiei, a retail group, dropped 0.4 per cent to Y277 and Misawa Homes fell 1.7 per cent to Y284.

European markets rose in early trade on Friday

European equity markets on Friday began to recover some of the sharp losses of the previous session, which were driven by falling technology stocks over fears of future earnings growth.

In early trade, the FTSE Eurotop 300 rose 0.4 per cent to 967.22, while the Xetra Dax in Frankfurt added 0.5 per cent to 3,819.07. In Paris, the CAC-40 gained 0.3 per cent to 3,581.86, and London's FTSE 100 climbed 0.5 per cent to 4,328.1.

    SAP, the German business software maker however, was up 2 per cent €125.78 after Henning Kagermann, chief executive, said on Thursday that business software demand was strengthening, and any weakness seen by its rivals mirrored gaining market share by SAP. The company reported a 15 per cent rise in sales in the previous session and maintained full-year guidance, but any positive sentiment was lost amid Thursday's declines.

    Chip-related stocks also regained some ground, and Infineon added 1.1 per cent to €9.55, while STMicroelectronics climbed 1.3 per cent to €16.12. ASML, the manufacturer of chip-making equipment, was up 1.8 per cent to €12.01.

    The auto sector was in the spotlight, with Volkswagen due to report second-quarter results later, while talks between DaimlerChrysler and its employees over labour cost-cutting were resolved. Daimler said on Friday it would save €500m a year from 2007 after the new deal with plant workers. In return, the carmaker was to guarantee 6,000 in German factories until 2012. Its shares were up 1 per cent to €36.56.

Telenor, Norway's biggest telecoms operator, beat expectations with a 31 per cent increase in second-quarter core earnings, thanks to robust growth in its international mobile operations.

    French telecoms equipment maker Sagem reported a 32 per cent increase in first-half net profit, thanks to strong mobile handset sales. The company, which also supplies avionics systems to the defence industry, raised its full-year sales and profit targets. Sagem added 0.5 per cent to €84.15.

Mobile handset makers were generally stronger. Ericsson, which dropped more than 4 per cent on Thursday - even with Wednesday's "spectacular" results still fresh in investors' minds, recouped 2 per cent to SKr20.80. Alcatel was up 0.6 per cent to €11.44, while Siemens gained 0.9 per cent to €55.73.