By Aiko Hayashi
TOKYO (Reuters) - The NIKKEI (NIKKEI225.)average plunged 9.4 percent on Wednesday, its biggest drop since the 1987 stock market crash, as growing fears of a global recession led investors to wipe $250 billion off the value of Tokyo shares.
Toyota Motor Corp <7203.T> tumbled more than 11 percent on growing expectations that the crisis would bite deeper into its profits, while the yen hit a six-month high against the dollar, adding to the pressure on exporter shares.
Panic over the fast-spreading financial crisis dragged down markets across Asia, with Japanese steelmakers such as Nippon Steel Corp <5401.T> sliding, as the Nikkei set another five-year closing low. It has lost 19 percent in the past five days.
"The deteriorating outlook for the economy and the deepening financial crisis are pushing fear to its limit," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"Investors want to dump shares as their willingness to take risks has shrunk, but no one wants to buy even if stocks are valued cheaply."
The yen climbed to a six-month high against the tumbling U.S. dollar, as investors stampeded away from stocks and risky positions.
The Nikkei posted its biggest one-day fall since a 14.9 percent drop on October 20, 1987, the day after Black Monday, and logged the third-largest one-day drop ever.
The Indonesia Stock Exchange halted trading on Wednesday after the benchmark composite index <.JKSE> dropped more than 10 percent, while Hong Kong's main stock market index <.HSI> dropped more than 5 percent.
The benchmark Nikkei <.N225> slid 952.58 points to 9,203.32, its lowest close since June 2003.
The broader Topix <.TOPX> lost 8.0 percent to 899.01.
Trade picked up on the Tokyo exchange's first section, with 2.86 billion shares changing hands, compared with last week's daily average of 2.08 billion.
Declining stocks outnumbered advancing ones by more than 37 to 1.
The value of the Tokyo exchange's first section finished Wednesday at 287 trillion yen ($2,835 billion), down $250 billion. <.MV1.T>
Analysts said that even at lower valuations, investors would still shun stocks as more companies were expected to cut their earnings forecasts.
"Investors are not selling because Japanese stocks are good or bad, but because of the credit squeeze," said Kenichi Hirano, operating officer at Tachibana Securities.
"I see around 9,300 as the possible bottom for the Nikkei average, considering projected corporate earnings for the year ending March 2009."
The projected price-earnings ratio of the Nikkei stock average tumbled to a 37-year low at 12.5 times on Tuesday, according to the Nikkei business daily.
Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp, said the Nikkei was likely to see further declines due to a lack of policy responses from Japanese authorities, such as additional fiscal spending steps to support the economy.
He added it was also hard to expect any major initiatives from the meeting of Group of Seven finance ministers on Friday.
"If there was something they could do, I think they would have already done it," Uno said.
Still, Prime Minister Taro Aso said on Wednesday the fall in Japanese shares was abnormal.
EXPORTERS BATTERED
"Toyota is such a symbolic issue in Japan's manufacturing sector, and the fact that the company is likely to post an earnings decline of this scale, has got to have a severe impact on investor sentiment," said Mizuho Asset Management fund manager Yoshihisa Okamoto.
Shares of Toyota tumbled 11.6 percent to 3,280 yen. The automaker is considering cutting its annual earnings forecasts due to sluggish demand in industrialized nations, slowing sales in emerging markets and a firmer yen, a company source said.
Among other exporters, Advantest Corp <6857.T>, the world's No.1 maker of chip testers, tumbled 14.9 percent to 1,538 yen, while Honda Motor Corp <7267.T> sank 10.3 percent to 2,305 yen.
Shares of Nippon Steel lost 11.9 percent to 281 yen, while shipping firm Mitsui OSK Lines <9104.T> shed 12.8 percent to 622 yen.
Financial shares also fell but many outperformed the overall market. Top lender Mitsubishi UFJ Financial Group <8306.T> dropped 5.9 percent to 763 yen, and No.2 Mizuho Financial Group <8411.T> slid 7.7 percent to 361,000 yen.
Investors punished stocks with earnings worries.
Hitachi Construction Machinery Co <6305.T>, Japan's second-biggest earth-moving equipment maker, plunged 16.5 percent to 1,516 yen.
The Nikkei business paper reported that Hitachi Construction could see a first profit decline in seven years in the year to March 2009 due to a sharp fall in demand in Europe and signs of weakening sales in countries such as India and Russia.
(Reporting by Aiko Hayashi; Additional reporting by Masayuki Kitano and Kiyoshi Takenaka; Editing by Rodney Joyce)
