Nikkei at 3-year low, hit by global credit fears
(Updates to midafternoon)
TOKYO, Sept 18 (Reuters) - The Nikkei average slid 3.5 percent to a three-year low on Thursday, dragged down by financial shares, with credit fears highlighted by major U.S. banks' moves to scramble for merger partners.
Sony Corp (6758.T) plunged after a Goldman Sachs rating downgrade, and other exporters such as Honda Motor Co Ltd (7267.T) tumbled amid growing concern about the impact of the financial crisis on the broader economy.
News emerged of potential takeovers involving No. 2 U.S. investment bank Morgan Stanley (MS.N), weakened top U.S. savings bank Washington Mutual (WM.N) and major UK mortgage lender HBOS HBOS.L, with the financial landscape undergoing its most dramatic transformation since the Great Depression. [ID:nN17533580]
"What's more worrisome than bankruptcies is the unwinding of positions by hedge funds that exist behind investment banks, triggered by financial fears," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"We will only have Goldman Sachs as an independent investment bank (if Morgan Stanley finds a buyer). If Goldman Sachs were to go wrong somehow, though the situation doesn't seem that bad, we'd have a global financial panic."
As of 0414 GMT, the benchmark Nikkei average .N225 had shed 413.77 points to 11,336.02, its lowest level since June 2005. The broader Topix lost 3.9 percent to 1,077.93.
U.S. stocks dropped to a three-year low on Wednesday as the U.S. rescue of insurer AIG (AIG.N) failed to calm a crisis of confidence in global markets. Investors worldwide are pulling their money out of equities and other risky assets.
Top lender Mitsubishi UFJ Financial Group (8306.T) dropped 6 percent to 752 yen and No.2 Mizuho Financial Group (8411.T) lost 8 percent to 382,000 yen.
Nomura Holdings (8604.T), Japan's biggest brokerage, sank 7.3 percent to 1,180 yen.
Sony plunged 9.5 percent to 3,240 yen, becoming one of the top drags on the Nikkei, after Goldman Sachs cut its rating to "neutral" from "buy", citing increasing risks to its liquid crystal display TV, digital camera and mobile phone businesses.
Honda skidded 5.1 percent to 3,140 yen and Toyota Motor Corp (7203.T) fell 4.4 percent to 4,390 yen.
Toshiba Corp (6502.T) sank 8.1 percent to 443 yen after the Nikkei business daily said it was expected to swing to a group operating loss of about 30 billion yen ($287.3 million) for the six months to September due to its weak microchip business.
On a bright note, Sumitomo Metal Mining Co (5713.T) jumped 3.9 percent to 1,085 yen as gold XAU= advanced after posting a record one-day gain in dollar terms the previous day, with investors buying safe-haven gold as stocks plunged. (Reporting by Aiko Hayashi; Editing byy Chris Gallagher)
