Nikkei closes down 2.5%

Japanese shares drop sharply for a second day, but recovered from an earlier fall of 7.6 per cent to close down 2.5 per cent.

Pedestrian are reflected on an electric market board in Tokyo. Japan's key stock index has plunged more than seven per cent in early trade on worries over weak corporate earnings.

TOKYO // Japanese shares dropped sharply for a second day today, tracking another drop on Wall Street, as jittery investors dumped stocks on growing worries over a slump in the global economy and weak corporate earnings. The benchmark Nikkei 225 stock average pared earlier losses to sink 213.71 points, or 2.46 per cent at the close of trading. At one point, it was down 7.6 per cent.

"Selling on Wall Street triggered yet another selling in Tokyo," said Kazuhiro Takahashi, an equity strategist at Daiwa Securities. "Sentiment remained depressed as weak corporate earnings intensified worries over a slowdown in the global economy." Yesterday in New York, the Dow Jones industrial average tumbled 5.7 per cent to 8,519.21. Investors in Japan are worried that the US economy, a vital export market, is sliding into a recession. Hundreds of US companies are reporting third-quarter results and many are issuing murky forecasts, stirring unease.

For example, Wachovia Corp, which is being bought by Wells Fargo & Co, reported that it swung to a huge loss in the third quarter, while drugmaker Merck & Co said its quarterly profit fell 28 per cent and that it would cut more than 10 per cent of its workforce. Investors in Tokyo also traded with caution ahead of the release of Japanese corporate earnings that start in earnest next week with Canon on Monday and Honda on Tuesday.

The Japanese electronics powerhouse NEC have downgraded their earnings estimates amid an economic downturn at home and abroad. The broader Topix ended the day down 2 per cent at 871.70 after earlier falling more than 6 per cent. *AP