TOKYO The Nikkei average tumbled more than 11 percent on Thursday in its biggest one-day fall since the 1987 stock market crash, after weak U.S. data fueled fears that bank rescue measures would not stave off a global recession.
Shares slid across the board, led by blue-chip exporters such as Canon Inc (7751.T), while shippers like Mitsui OSK Lines (9104.T) and trading houses also took a beating.
"The deteriorating economy is coming into the spotlight as fears over the financial system, which had been the main factor for market sell-offs up to now, are easing gradually," said Yoshinori Nagano, chief strategist at Daiwa Asset Management.
"Just as financial worries started calming down after a series of measures, we'll need steps to deal with the economy."
The Nikkei's tumble followed Wall Street's worst day since the 1987 crash. The Nikkei erased most of its gains made on Tuesday, when it soared more than 14 percent for it biggest one-day advance ever after world governments pledged to support struggling banks.
It is down nearly 45 percent so far this year.
Fears of a recession were stoked as monthly U.S. retail sales showed their biggest fall in more than three years and after Federal Reserve Chairman Ben Bernanke said the U.S. economy faced a "significant threat" from paralyzed credit markets. .N
In Japan, a Reuters poll showed manufacturing business sentiment hit a six-year low in October, in another sign the world's second-biggest economy is on the brink of recession.
The benchmark Nikkei .N225 shed 11.4 percent or 1,089.02 points to finish at 8,458.45, though it still held above 8,115.41 touched last week, which was its lowest point since May 2003.
The decline was the biggest one-day drop since a 14.9 percent plunge that the Nikkei logged on October 20, 1987.
The broader Topix index .TOPX lost 9.5 percent to 864.52.
Japanese Prime Minister Taro Aso said on Thursday that the share price falls show markets believe the U.S. bank bailout plan may not be enough to fix the financial crisis.
"The markets are selling off stocks because investors still think the steps by U.S. authorities are not sufficient," Aso said in parliament.
Only two stocks gained among Nikkei 225 issues -- household products maker Kao Corp (4452.T) and tiremaker Bridgestone Corp (5108.T).
TRADING HOUSES, SHIPPING FIRMS HIT
Exporters were hit hard as the dollar remained weak against the yen, while trading houses were also battered as oil hit a 13-month low.
"U.S. retail sales data sparked fears over the slowing economy, and that led investors here to assume earnings at Japanese companies would be also hit," said Yumi Nishimura, manager at Daiwa Securities SMBC.
"Even if we see some buying on the dip or gains on short-covering, substantial gains in the market will be difficult for a while... I see around 8,000 as the short-term floor for the Nikkei."
Among exporters, Canon sank 12.2 percent to 3,010 yen while Sony Corp (6758.T) tumbled 13 percent to 2,320 yen. Honda Motor Co (7267.T) slid 10.2 percent to 2,115 yen and Toyota Motor Corp (7203.T) lost 9.3 percent to 3,310 yen.
The dollar rose to around 100.15 yen though the yen remained strong as growing economic fears sent investors out of risky assets.
Shipping firms fell, with Mitsui OSK sinking 14.8 percent to 534 yen and Kawasaki Kisen Kaisha (9107.T) shedding 13.2 percent to 403 yen.
Among trading houses, Mitsubishi Corp (8058.T) shed 15.2 percent to 1,677 yen and Mitsui & Co (8031.T) tumbled 17 percent to 978 yen.
Trade was light on the Tokyo exchange's first section, with 2.56 billion shares changing hands, below last week's daily average of 2.92 billion.
Declining stocks outpaced advancing ones by nearly 19 to 1.
(Reporting by Aiko Hayashi; Editing by Edwina Gibbs)