Nikkei down 5.65 pct, biggest one-day loss since 9-11

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By Elaine Lies

TOKYO, Jan 22 (Reuters) - Japan's benchmark Nikkei average plunged 5.65 percent to a 28-month closing low on Tuesday, its biggest one-day loss since the session after the Sept. 11 attacks on the United States in 2001, as growing fears about the U.S. economy sent global stocks reeling.

The broader TOPIX index tumbled 5.7 percent, also its biggest one day loss since 9-11.

The Nikkei has lost 1,288 points and more than 9 percent this week, and is down nearly 18 percent so far this year. Tuesday's fall wiped out about $225 billion in market value -- about the size of the economy of Ireland.

Investors dumped stocks across the board, battering financials and exporters especially hard. Mizuho Financial Group (8411.T) tumbled more than 8 percent.

"It's like a funeral in here," said Ken Masuda, senior equities dealer at Shinko Securities.

"No one knows what is going to happen tonight in New York. It's like we've gone blind -- you don't know what's coming. Until we see New York, all we can do is sell."

Asian shares took a battering, helping to push the Nikkei lower. Trade on the main bourse of Korea's stock exchange was halted for five minutes and Indian stock trading .BSESN was halted temporarily after steep falls.

MSCI's index of Asian shares ex-Japan .MIAPJ0000PUS was down 7.9 percent as of 0636 GMT.

Pessimism in Japan reigned from large institutions all the way down to individual investors. "It's kind of creepy. It feels like we're in a bottomless swamp," said Junichi Nakajima, a retired 69-year-old, as he anxiously watched a big screen showing tumbling indices.

LOOKING TO U.S.

U.S. stock index futures sank in holiday-shortened trading in New York on Monday, indicating Wall Street was likely to join the market plunge when trading resumes on Tuesday, although market players said that falls there could spark more emergency measures from the U.S. government to halt the global slide.

"The U.S. government needs to do something dramatic," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

"We need fresh policy moves that are broader than the proposals offered last week, or perhaps an emergency rate cut by the Federal Reserve, to be followed by another one at their scheduled meeting later this month."

Many in the market said the fresh selling wave was fed by worries after a unit of U.S. bond insurer Ambac Financial Group Inc (ABK.N) lost a crucial top "AAA" credit rating on Friday, when Fitch Ratings cut Ambac Assurance Corp's rating after the bond insurer scrapped plans to issue $1 billion of new equity.