Taiwan stocks fell nearly three percent in slack trade on Monday as investors headed for the sidelines to wait and see if broad market scepticism on the outlook for corporate and economic fundamentals was justified.
The TAIEX share index lost 2.81 percent to finish at 5,574.08 after holding steady for most of the morning, giving up 7.4 percent over four straight sessions of losses and breaking through psychological support at 5,600.
Nearly all sectors lost ground in the broad retreat, with computer display screen maker AU Optronics sliding 4.12 percent after Deutsche Bank downgraded the issue to "hold" from "buy" on Friday.
AU was the most actively traded issue with volume of 99.56 million shares.
"Investors were just not very aggressive on bargain-hunting. There was a feeling that this is not the right place to bullish," said Alvin Teng, assistant research manager at SinoPac Securities.
"It just seems as if there is more bad news on fundamentals than good news right now," Teng said. "People now expect that the Fed will be more aggressive on interest rates."
Besides analyst downgrades on technology heavyweights like AU and Taiwan Semiconductor Manufacturing Co (TSMC) last week, US Federal Reserve Chairman Alan Greenspan said the Fed would do "what is required" to keep inflation in check, suggesting interest rates would rise quicker than expected.
TSMC, the world's biggest contract chip maker, surrendered intraday gains as high as 4.85 percent to end unchanged after going ex-dividend on Monday.
TSMC's share price opened at T$43.30 after closing at T$50.50 on Friday, discounted to reflect dilution from a 14 percent stock dividend.
Taiwan stocks often surge back to their original pre-dilution price when the market's mood is upbeat.
Sluggish turnover of T$66.8 billion exacerbated the sudden drop as trading dropped from T$75.37 billion in the previous session.
Investors are also worried about moves to further cool China's economy, the island's largest export market.
Financial shares offered no relief from the sour mood in the technology sector as investors continued to take profits on gains last week fuelled by expectations lawmakers would extend the life of a state fund aimed a buying bad loans.
Mega Financial Holdings, Taiwan's second-largest listed financial firm, lost 4.05 percent to close at T$21.30, giving back most of last week's advance after parliament passed the extension on Friday.
The over-the-counter market's TAISDAQ share index tumbled 3.51 percent to 121.23, while June TAIEX futures lost 175 points, or 3.06 percent, to 5,540, sharply widening its discount over the spot market.