Japan's Nikkei average fell 2 percent to log a two-month closing low on Thursday after spreading credit fears sent Wall Street tumbling and exporters such as Honda Motor were battered by a strong yen. The broader TOPIX index was hit even harder, dropping more than 3 percent at one point.
The widespread selling during the Nikkei's fifth consecutive losing session wiped out all the average's gains since the 50-basis-point US Federal Reserve interest rate cut on September 18.
"In August, when stocks really plunged, the feeling was widespread that the subprime mortgage crisis could be solved relatively fast, meaning that the Nikkei would fall fast on bad news but also recover quickly," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
"But now it doesn't seem as if the credit crisis will clear up anytime soon. It's as if we're cornered." The Nikkei ended at 15,771.57, down 325.11 points, its lowest close since September 10. The TOPIX ended the day down 2.6 percent at 1,516.94 - its lowest close since September 18. US stocks tumbled as a probe of the home loan industry by New York's attorney general drew in the country's biggest mortgage finance companies, and Washington Mutual Inc warned the housing downturn could extend well into next year.
They also took a beating after General Motors Corp posted its largest ever quarterly net loss and reported a $39 billion charge related to unclaimed tax credits and a deeper-than-expected loss at former finance subsidiary GMAC.
Market participants said Tokyo's recent falls don't reflect the fundamental strength of Japanese companies, as shown by their generally good earnings results this month. "Everything's moving on what happens in the United States since there aren't really any big factors here," said Takahiko Murai, a general manager of equities at Nozomi Securities.
By the afternoon, the dollar was around 112.67 yen, picking up from a three-month low of 112.00 yen on electronic trading platform EBS earlier on Thursday. Blue chip exporters suffered almost across the board, with Honda sliding 2.9 percent to 4,000 yen and becoming the greatest drag on the Nikkei 225. Toyota Motor Co lost 4 percent to 6,170 yen, a day after the car maker reported a 2.7 percent rise in quarterly operating profit.
The stock had been rising on expectations ahead of the earnings, so investors took profits once the results were out. The strong yen also hurt Toyota, a major exporter, and made it a another major strain on the Nikkei.
Financial firms suffered in tandem with their US cohorts. Mizuho Financial slipped 3.4 percent to 563,000 yen and Mitsubishi UFJ Financial Group fell 3.2 percent to 966 yen. Sumitomo Mitsui Financial Group fell 2.9 percent to 797,000 yen.
Japanese brewer Kirin Holdings shed 2.2 percent to 1,697 yen after saying it would buy Australian dairy and fruit juice producer National Foods for A$2.8 billion ($2.6 billion) from Philippine partner San Miguel Corp, its latest move to offset stagnating beer sales. One of the day's worst losers was Chiyoda Corp, which plunged 14.1 percent to 1,707 yen.