Nikkei falls over 4 pct, biggest loss since quake

TOKYO, (Reuters) – The Nikkei average tumbled more  than 4 percent in heavy volume today, posting the biggest  one-day fall since the March earthquake as investors fled the  stock market in the wake of a plunge on Wall Street and a  downgrade of U.S. sovereign debt.

The mood was exacerbated by news that China’s consumer price  inflation rose to 6.5 percent in July from June’s 6.4 percent,  topping market forecasts for 6.3 percent and fuelling fears of  more tightening in the world’s second-largest economy.

Despite relatively cheap valuations, the Tokyo market could  not avoid the repercussions of the U.S. downgrade, which  prompted investors to unload risky assets.

Analysts said many investors initially underestimated the  potential market impact of Standard & Poor’s downgrade of U.S.  debt, with the Nikkei posting a less severe slide on Monday, but  it now looks vulnerable with new sell orders coming in and the  potential for fund redemptions and margin calls.

“Foreign investors wasted little time to unload Japanese  stocks, and there may be more selling in the coming days,” said  Makoto Nagahori, head of equities at Instinet, adding that  investors may hedge against potential losses ahead of the Nikkei  options settlement on Friday.

The benchmark Nikkei was down 4.4 percent at 8,694.31  by the midday break after falling as low as 8,656.79, just above  an intraday low marked on March 17 of 8,639.56.

Analysts said if the Nikkei drops below that mark the next  support is seen at 8,227.63, an intraday low posted on March 15. The broader Topix fell 4.6 percent to 746.52.

Volume was heavy, with 1.4 billion shares changing hands on  the Tokyo stock exchange’s main board in the morning session,  suggesting the full day’s volume will top last week’s average of  2.0 billion shares.

Panic selling on Wall Street brought the S&P 500’s worst day  since December 2008, with every stock in the benchmark index  ending in negative territory.

In the Japanese market, all of the Topix’s 33 subsectors  were in negative territory, with oil shares and trading houses  underperforming on falling crude prices. Inpex tumbled 9.8 percent to 474,500 yen, JX  Holdings dived 7.5 percent to 467 yen and Mitsui & Co   fell 6.9 percent to 1,223 yen.

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