Disappointing tech sector earnings set off a second day of selling on Wall Street Wednesday as investors also worried about a massive tumble in Japan's market and rising oil prices.
Earnings from Intel and Yahoo raised investors' anxiety about other companies' results during the first big week of quarterly reports. Meanwhile, crude oil futures remained well above $66 per barrel, an unusually high price for this time of year.
Tokyo's stock markets closed early due to heavy trading volume, an unprecedented move, as the Nikkei 225 lost 2.94 percent for the session. The selloff moved to Europe, where the major indexes also dropped significantly.
Japan's main stock market nose-dived for a second day Wednesday on investor jitters from "Livedoor shock," the widening criminal investigation at an Internet startup that has sparked a sell-off, especially in technology shares.
"It's a big well-known Internet company. It was one of the high-flyers that people thought was doing really well, and it turns out it may have been playing with the books, much like Enron," reports CBS News correspondent Barry Petersen.
Investors and the Japanese public alike were stunned when prosecutors marched into the Tokyo headquarters of Livedoor Monday evening on suspicion of violation of securities laws by giving false information.
Livedoor is headed by 33-year-old Takafumi Horie, who has risen to celebrity status as a geeky entrepreneur — a rarity in Japan. He has made unsuccessful attempts to buy a media conglomerate and a baseball team, frequently appears on TV and runs a widely-read blog.
The national daily Yomiuri Shimbun reported Wednesday that Livedoor is suspected of concealing a 1 billion yen ($8.7 million) deficit for the full-year results ending September 2004.
Horie denies any wrongdoing, and authorities would not comment on the Yomiuri report.
Internet-related stocks like Softbank Corp. and Yahoo! Japan got hit in the Tokyo market's plunge, but blue-chip electronics firms like Canon Inc., Toshiba Corp. and Sony Corp. also fell.
Those losses could also be partly attributed to investor disappointment over to earnings results Tuesday from U.S. chipmaker Intel Corp. and Web giant Yahoo Inc., which were lower than analysts' expectations.
Yet most of the U.S. market's losses could be blamed almost entirely on tech-sector selling, with other stocks generally holding firm after the Labor Department reported better-than-expected retail inflation data.
Fears over escalating tensions in the Middle East were blamed for the high cost of oil, though unusually warm weather and low heating oil demand in the Northeast helped keep prices temporarily in check.
The government's inflation data helped keep Wall Street's losses confined to the tech sector. The consumer price index, which measures the price of retail goods and services, fell 0.1 percent, better than the 0.2 percent rise expected on Wall Street. So-called "core" CPI, with food and fuel prices removed, rose 0.2 percent, in line with economists' forecasts.
Dow component Intel posted a 16 percent jump in fourth-quarter profits, but missed Wall Street's earnings forecasts by 3 cents per share. The chip maker blamed soft computer demand for the shortfall.
Yahoo also missed analysts' profit expectations despite doubling its fourth-quarter earnings from a year ago. It was the second consecutive quarter that Yahoo missed Wall Street's forecasts, prompting worries that the Internet company was losing ground to rival Google Inc.
Once it became clear the Japanese market was selling off for a second day, investors seemed to panic and rushed to sell before the session ended.
"The cause was threefold — Livedoor, America and a mess-up by the Tokyo Stock Exchange," said Seiichi Miura, investment strategist at Mitsubishi UFJ Securities Co. "People got worried about what's going to happen tomorrow if we can't sell today."
Earlier Wednesday, the exchange had issued a warning it would stop trading if the system capacity limit of 4 million transactions was reached. As it reached 3.5 million about an hour before the session's close, it announced it would stop trading 20 minutes early.
The market sell-off and the early close of trading could put a big damper on investor enthusiasm for Japanese stocks, which surged 40 percent last year amid hopes for a long-awaited recovery.
Confidence in the Tokyo exchange, the world's second biggest bourse, had already been damaged by a system crash from a computer malfunction Nov. 1, when trade was suspended for all but the final 90 minutes.
Economics Minister Kaoru Yosano demanded a report from the exchange on its decision to shorten trading.
The aftermath of the Livedoor probe has been greater than what may be expected because of the wide attention its vivacious chief executive Horie has enjoyed in the last couple of years from the Japanese public as a pioneer in new-style management that challenged stodgy tradition.
Geeky entrepreneurs sporting T-shirts and jeans are rare in Japan, and Horie and his defiant mannerisms and glamorous lifestyle fascinated people here.
As a high-profile issue among ventures, Livedoor was popular among individual investors, and a plunge in Livedoor stock was apt to influence other shares because some people used Livedoor stock as security on loans to buy other technology stock, Miura said.
Livedoor shock underlines the growing pains of the Japanese stock market and economy in a nation where individual investors and mutual funds aren't as widespread as in the United States and some European nations.
Companies like Livedoor that grew by buying up other companies and boosting its and subsidiaries' stock prices are still relatively novel in Japan.
"This is bad news at a bad time for the Japanese economy, which had been showing some signs of resurgence, after almost 15 years of being in the dumps," said Petersen. "The stock market was on the way up. Now, for two days, it has been almost crashing down dramatically because of the scandal involving an Internet company, and casting doubt on the long-term effort of the Japanese economy to make it back."