Crisis drives Nikkei to 5-year low below 10,000

Fears over the global financial crisis drove Japan's Nikkei stock average down more than 5 percent on Tuesday to a five-year low below 10,000 before bargain hunters picked up issues on the cheap, helping trim the average's loss to 3.1 percent.

The yen, which was holding near a six-month high against the dollar hit on Monday, hurt exporters such as Canon Inc (7751.T: Quote, Profile, Research, Stock Buzz) and automakers, whose earnings have been badly undercut by the worsening economy overseas. FXNEWS [FRX/]

"The market has been in a panic situation since last week, and a lot of people are moving into cash," said Koichi Ogawa, chief portfolio manager at Daiwa Asset Management. "It's not really moving on sense, there are a lot of people who may have no choice but to sell."

The benchmark Nikkei .N225 at one point slid as low as 9,916.21, its lowest since December 2003, before ending the morning at 10,148.46 with a loss of 324.63 points. It has lost 7.2 percent since Friday.

The broader Topix was down 2.7 percent at 972.13 after earlier also falling more than 5 percent. U.S. stocks slid for a fourth straight day on Monday, pushing the Dow below 10,000 for the first time in four years, on fears the global economy was hurtling towards recession despite efforts to contain the fast-spreading financial crisis [.N]

Though Japan has remained comparatively unscathed until now, policymakers admitted on Tuesday that the crisis is taking a toll, with Finance Minister Shoichi Nakagawa saying Japan's economy was worsening. [ID:nTKF003044]

Separately, Prime Minister Taro Aso said U.S. financial conditions were very severe, and Tokyo should be prepared for its impact on Japanese exports, which drive its economy.

Individual Japanese investors were fearful.

"There's no way I can predict what's going to happen next," said Tetsuo Kurosaki, a 59-year-old company executive. "The European market is also influenced and I bought products from there so I'm even more worried."

ACTION, FAST

Market participants said something needs to be done, perhaps even before G7 talks in Washington later this week.

"We need some sort of policy response," said Katsuhiko Kodama, senior strategist at Toyo Securities.

"Otherwise, it's hard to know where the fall might stop. The focus of the market is on some sort of joint interest rate cut."

Bargain hunting eventually emerged on a sense the Nikkei had been oversold, tracking moves on the Dow where a record 800-point intraday drop eventually was cut almost in half, though rises were expected to be limited.

"The market must have a reality check against the real economy," said Daiwa Asset's Ogawa.

"Since September it appears the market has been in a panic situation that has worsened the whole credit crisis, especially in the U.S. and Europe."

The yen's surge against the dollar hit exporters, whose products become less competitive overseas when this happens.

Canon shed 4.6 percent to 3,510 yen and Kyocera Corp (6971.T: Quote, Profile, Research, Stock Buzz), hit by the double punch of the strong yen and a fall in its U.S. peers, lost 3.4 percent to 7,210 yen.

Honda Motor Corp (7267.T: Quote, Profile, Research, Stock Buzz) and Toyota Motor Co (7203.T: Quote, Profile, Research, Stock Buzz) slid 5.2 percent and 5.9 percent respectively.

Sharp Corp (6753.T: Quote, Profile, Research, Stock Buzz) tumbled 9.2 percent after the consumer electronics maker cut its annual operating profit outlook by one-third due to sluggish domestic sales of mobile phones, missing market expectations by a wide margin. [ID:nT314929]

Trade was active, with 1.4 billion shares changing hands on the Tokyo Exchange's first section compared with last week's morning average of 910 million. Decliners outpaced advancers by more than 8 to 1.