Nikkei Plunges To Lowest Close In A Year

Seatbelts are once again recommended on Wall Street, a day after a wild ride in which The Dow Jones industrial average closed down just 16 points after falling more than 340 points in a decline fueled by anxiety over problems with the home mortgage market.

In Tokyo Friday, Japanese stocks dipped more than 5 percent to a one-year low as the dollar's sharp drop against the yen aggravated concern about earnings outlooks in a market already hurt by the U.S. housing loan crisis.

The Nikkei 225 closed down 874.81 points, or 5.42 percent, at 15,273.68 points, hitting its lowest level since Aug. 7, 2006, when the index finished at 15,154.06. In terms of points, Friday's decline was the largest since the Nikkei gave up 1,426.04 points April 17, 2000.

Japanese stocks fell despite Wall Street pulling off a dramatic late-session turnaround to close mixed Thursday after bargain hunters lured by weeks of massive declines returned to the stock market.

Japan's broader Topix index, which includes all shares on the exchange's first section, lost 87.07 points, or 5.55 percent, to 1,480.39 points.

The dollar's sharp decline against the yen was the main blow Friday to the Japanese stock market, sending exporter issues tumbling, traders said.

The dollar was trading at 112.42 yen at 2:50 p.m. (0550 GMT), down from 113.11 yen late Thursday in New York. The 13-nation euro traded higher against the dollar, to US$1.3420 in Tokyo from US$1.3405.

"The market is really worrying about the fast appreciation of the yen. The market is also worried about the U.S. economy," Credit Suisse Chief Strategist Shinichi Ichikawa said. "The next couple of weeks will be a very tough time for global financial markets."

A higher yen makes Japanese exports more expensive and less competitive overseas, and weaker dollar has prompted concerns among companies about a possibility to have to lower their earnings outlook.

Many Japanese companies have expected strong earnings from the weaker yen during the April-June quarter, but they are now likely to be offset by the currency's sharp rise, said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Securities.

"The trend may last until around October, when financial institutions release their earnings and become clear of their credit loan debts," Fujito said.

Among Friday's losers were automakers Toyota Motors Corp., which tumbled 7 percent to 6,200 yen (US$53.80), and Suzuki Motor Corp., down 11 percent to 496 yen (US$4.30). Gamemaker Nintendo Co., which relies on overseas sales for much of its revenue, also plunged 9.7 percent to 46,700 yen (US$405).

Earlier Friday, Japan's central bank injected 1.2 trillion yen (US$10.5 billion; euro7.8 billion) into money markets - the third injection this week and triple the amount it injected the day before - in a bid to curb rises in key interest rates.

Central banks in the U.S., Europe, Australia and Japan have injected tens of billions of dollars into money markets since Aug. 9 when stocks tumbled because of worries over U.S. subprime mortgage problems.

Wall Street Thursday at first appeared to be on an almost relentless downward spiral after problems at Countrywide Financial Corp. confirmed investors' fears that credit problems are spreading. Moreover, for much of the day, investors shrugged off the Federal Reserve's injection of $17 billion into the banking system, and appeared to be angling for a rate cut instead.

The market clawed back with a bounce in blue chip stocks, with a leadership role going to the downtrodden financial sector.

In spite of the big comeback, most of which came in the final hour of trading, Wall Street is still an uncertain place, having been pounded by weeks of losses including triple-digit slides in the Dow. All three of the market's big indexes reached levels Thursday where they were down 10 percent from their mid-July highs - the definition of a stock market correction.

Some analysts were hopeful.

"The fundamental buyers are coming back into the market, and typically trading in the last half hour of the day is where the smart institutional money is going," Jack Ablin, chief investment officer at Harris Private Bank, said at the close of trading on Thursday. "There's a feeling that maybe we've pushed it too far, and this gives us a running start for positive markets worldwide on Friday."

While the market has seen big gains over the past few weeks, those gains often quickly evaporate the next day. Often, the buying has been done by traders or hedge funds trying to cover losses from what's known as short trading. In short trading, an investor sells borrowed stock on a bet that the market will fall; when the market rises, the investor must buy stock to pay back the debt. While bargain hunting helped lift stocks, it's likely that Thursday's gains were also due to short covering.

The Dow fell 15.69, or 0.12 percent, to 12,845.78.

The Standard & Poor's rose 4.56, or 0.32 percent, to 1,411.26, and the Nasdaq composite index dropped 7.76, or 0.32 percent, to 2,451.07. The Russell 2000 index of smaller companies rose 17.29, or 2.30 percent, to 768.83.

Bonds continued their rally as investors fled to safer securities. The yield on the benchmark 10-year Treasury note dropped to 4.66 percent from 4.72 percent late Wednesday. Yields had been as low as 4.60 percent earlier in the session, but began to reverse as stocks rebounded.