Bank and construction stocks have taken a battering in the wake of the collapse of department store chain Sogo Co. in July.

With foreign investors continuing to sell Japanese shares, the upside of the Tokyo stock market could stay heavy for the time being.

Worries remain over the impact on economic activity of the Bank of Japan's decision to end its "zero-interest-rate" policy and over sales to liquidate cross-shareholding ties.

The market will weaken further in the short-term as business sentiment will likely worsen in reaction to the collapse of Sogo and real estate company Seiyo Corp.

Foreign investors logged a selling excess again in July in a turnaround from net buying the previous month.

The rate of unemployment and other lagging macroeconomic indicators may show worsened figures for technical reasons, and the market has become overly sensitive to the possibility of an economic slowdown.

In the corporate sector, capital spending seems to be improving at an accelerating pace as demonstrated by a 14.4 percent month-on-month increase in machinery orders in June, much higher than forecast figures such as a 2.1 percent rise projected on the Bloomberg average.

Machinery orders in July-September are expected to increase 10.7 percent for the fourth consecutive quarterly rise, indicating that the economy will begin a self-sustainable recovery, led by corporate capital spending, this fall.

Although the recovery will be led by big companies and manufacturers as in the past, nonmanufacturers are increasingly expected to contribute to it.

Recent surveys by the Shoko Chukin Bank and other lenders for small and midsize companies found that an increase in capital spending is spreading to smaller businesses and nonmanufacturers.

The stock market will assume upward trends later in September as the supply and demand balance will improve along with the confirmation of improving corporate earnings for the April-September first half of fiscal 2000.

The market, as measured by the benchmark 225-issue Nikkei average, could be hovering around 18,000 at the end of September, up from around 16,000 at present.