Tokyo’s Nikkei index fell by almost 4% to a three-month low as investors reacted to concerns over Japanese and American stocks and cashed in gains from recent days. Dublin’s ISEQ responded with a 1% fall, while Frankfurt’s DAX lost almost 3%.
The Nikkei fell below the key 10,000 level for the first time in three months, which triggered further selling by hedge funds.
Shares that had risen in line with growing confidence in a Japanese economic recovery, such as banks and steel companies, were most affected by the selling. Mizuho Financial Group, the world’s biggest bank in terms of assets held, lost almost 11%. Mitsubishi Tokyo Financial Group gave up almost 6%.
The Japanese banking regulator ordered banks to increase loan loss provisions last week.
Robbie Kelleher, head of research at Davy stockbrokers, said the falls in Tokyo were down to profit taking.
Tokyo’s performance followed heavy selling in late trading on Friday in New York as investor confidence in a global economic recovery appeared to falter. This was triggered by a profit warning by Wal-Mart, the retail giant, which suggested retail sales in the crucial run-up to Christmas would be lower than expected.
Technology stocks also saw heavy selling. European stock markets fell in early trading on Monday by an average of 1.5%.
The Nikkei has gained more than 40% since it reached a 20-year low in April of this year but is 13% lower than its year high, which was reached last month.
The index remains approximately 75% off its all-time high. Goodbody’s Colin Hunt said the prospects for economic recovery in Japan were still uncertain.