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.