Japan's Nikkei 225 Records 3rd-Biggest Drop; $250 Billion Lost

By Patrick Rial

Oct. 8 (Bloomberg) -- Japan's shares plunged, driving the Nikkei 225 Stock Average to its third-largest decline. The accelerating credit crisis prompted a sell-off that erased more than $250 billion in equity value.

Toyota Motor Corp., the world's second-largest carmaker, fell the most in 21 years after Nikko Citigroup Ltd. cut its rating. Mizuho Financial Group Inc. slid 7.7 percent as bankruptcies surged to the highest since May 2003. Elpida Memory Inc., the nation's largest computer memory maker, dropped to a record low as the yen strengthened to 100 against the dollar.

``It's capitulation,'' said Masafumi Oshiden, a Tokyo-based fund manager at BlackRock Inc., which oversees more than $1.4 trillion. ``There are lots of forced sellers. If you're a fund that's going bust you need to close out all your positions.''

The Nikkei 225 Stock Average sank 952.58, or 9.4 percent, to 9,203.32 at the close of trading in Tokyo, the steepest fall since a 15 percent drop in October 1987. The broader Topix index declined 78.60, or 8 percent, to 899.01, also the biggest loss in 21 years. Losses accelerated through the day as markets across Asia plummeted and Indonesia's exchange suspended trading.

The $250 billion in value erased from the main board of the Tokyo exchange was the most for a single day since at least 1989.

Toyota plunged 12 percent to 3,280 yen, the biggest slide since October 1987. Nikko Citigroup's Noriyuki Matsushima cut his rating to ``sell'' from ``buy,'' saying operating profit is likely to be 1.1 trillion yen ($10.9 billion) for the year ending in March, 31 percent below the company's estimate.

Interest Rate Cut?

The Nikkei newspaper said Toyota's operating profit may drop 40 percent this year to 1.3 trillion due to slowing demand for cars.

Isuzu Motors Ltd., Japan's largest maker of light-duty trucks, slid 14 percent to 192 yen, the steepest fall since August 2004. Hino Motors Ltd., which makes trucks for Toyota, dropped 14 percent to 295 yen after Nikko Citigroup also lowered the shares to ``hold'' from ``buy.''

``Investors are liquidating their stock positions because they are frightened of taking on any risks,'' said Takashi Miyazaki, who helps oversee $61 billion at Mitsubishi UFJ Asset Management Co. in Tokyo. ``The jury is still out on how bad this is going to turn out for the global economy.''

Mizuho, Japan's second-largest listed bank, dropped 7.7 percent to 361,000 yen. Sumitomo Mitsui Financial Group Inc., the third largest, declined 6.5 percent to 559,000 yen.

IMF Loss Estimate

Efforts by political leaders globally have done little to assuage concern that the credit crisis is intensifying. Federal Reserve Chairman Ben S. Bernanke signaled yesterday the central bank is ready to reduce interest rates, which sparked only a temporary rebound in U.S. markets. The Standard & Poor's 500 Index fell below 1,000 for the first time since 2003.

The UK will invest about 50 billion pounds ($87 billion) in the banking system, including the purchase of preferred shares. The Bank of England will also make at least 200 pounds available for bank loans, the Treasury said in a Regulatory News Service statement today. The worsening credit crisis has forced the U.K to join the U.S., Ireland, Iceland, Belgium and Spain in implementing bailout measures.

In a report on the financial system, the International Monetary Fund raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion from $1.3 trillion two weeks ago. The IMF cut its forecast for global growth next year to 3 percent from an April prediction of 3.7 percent, according to the draft of its latest World Economic Outlook.

Nippon Steel Corp., the nation's largest maker of the alloy, dropped 12 percent to 281 yen after its chairman said in an interview with the Nikkei that global steel demand will slow. JFE Holdings Inc., the No. 2, fell 14 percent to 2,330 yen.

Slower Growth

Profits for companies on the main board of the Tokyo exchange are likely to fall 13 percent before taxes this year, according to a report from Shoji Hirakawa, chief equity strategist at UBS AG in Tokyo.

Profit concerns have started to drag on shares across industries. Elpida lost 14 percent to 1,236 yen, a record low. Kao Corp., which makes toiletries and other household goods, stumbled 6.7 percent to 2,580 yen. Seven & I Holdings Co., the nation's top retailer, slumped 11 percent to 2,630 yen.

Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs Group Inc., yesterday lowered his 2009 growth forecast for Japan's economy to 0.5 percent from 1.3 percent, citing contagion from slower expansion overseas.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.