Japanese shares dropped on Tuesday, as investors were gripped by fears that an outbreak of a new coronavirus in China could potentially disrupt an improving economic backdrop following a US-China trade deal.

Airlines and travel companies were hit by wider contagion fears, while investors scrambled to buy makers of masks, protective attires and even infrared cameras that are used for screening passengers at airports and other key locations.

The Nikkei share average fell 0.91% to 23,864.56 from a 15-month high touched on Monday and the broader Topix lost 0.53% to 1,734.97.

"We had believed the global economy will recover this year after a slowdown last year. But if the disease spread to all of China, and the economy is affected, we might have to think about changing that scenario," said Tatsushi Maeno, senior strategist at Okasan Asset Management.

China's health authorities said the virus can pass from person-to-person. Three other countries -- Japan, South Korea and Thailand -- have confirmed cases already.
Airlines were worst performer in the Tokyo bourse' 33 industry subindex. falling 2.5% on fear an epidemic would hurt travel demand.

ANA Holdings fell 2.2% and Japan Airlines dropped 3.0%. Travel firm H.I.S. tumbled 5.1% while Japan Airport Terminal, operator of Tokyo's Haneda Airport, fell 4.5%

Shiseido, cosmetic maker that has benefitted from strong demand in China and from Chinese tourists, also dropped 3.9% to become the worst performer among the Nikkei constituents.

But anxiety over the virus outbreak has brought a windfall to some others.
Azearth, a supplier of protective attire, jumped 16.2% to the day's limit while Airtech Japan, which manufactures air shower and other air purifying products, gained 8.0%.

Shikibo, which produces anti-virus mask, gained 10.8% while fiber-maker Omikenshi jumped 16.4% to hit the daily limit.

Nippon Avionics, which makes infrared cameras, jumped 17.1%.

Elsewhere, Maeda Road Construction soared for a second day after its parent company Maeda Corp said on Monday it would launch an unsolicited bid to gain a controlling stake in the road builder.

Hopes of more industry consolidation have helped to lift the entire sector. The Tokyo Stock Exchange's construction company index rose 0.6% to a 15-month high.

On the other hand, Toshiba Machine tumbled 9.6% as the price of a takeover bid launched by an investment fund backed by veteran Japanese activist investor Yoshiaki Murakami fell short of market expectations.

The market showed a muted response to the Bank of Japan's decision to maintain its policy and revise up its growth forecasts.

Reuters