World of pain: Japan index nosedives 9.4%; fear spreads

HONG KONG -- Japan's stock market plummeted 9.4% — its biggest one-day drop in 21 years — Wednesday as investors rushed for the exits on deepening fears over the global financial crisis.

Panicked investors dumped stocks across Asia again Wednesday, knocking Tokyo's benchmark Nikkei index down 9.4% to its lowest close in more than five years.

Hong Kong's Hang Seng index dropped 8.2% to 15,431.73. Shares fell 5.8% in South Korea, 6% in Thailand, more than 10% in Indonesia, 6.6% in Singapore.

Nothing policymakers have come up with — not even the $700 billion U.S. bailout of Wall Street — has been able to calm markets terrified about a financial contagion that began in the U.S. housing market.

"In a moment of panic, investors need to see something powerful and easy to understand," said Tim Condon, chief Asian economist for ING bank in Singapore. Condon and other analysts would like to see a coordinated effort by U.S. and European central banks to pump massive amounts of capital into a fragile banking system. Even frightened investors would "think twice before swimming against a tsunami of central bank liquidity," Condon said.

So far, said equity strategist Christopher Wood of CLSA Asia-Pacific Markets, government efforts have been "ad hoc." In Hong Kong Wednesday, for instance, the Monetary Authority cut its benchmark interest rate by a full percentage point to 2.5% to thaw out frozen credit markets. And Britain announced that it would partially nationalize major banks.

Stewart Ferns, equity strategist for Macquarie Securities in Hong Kong, said stocks are being pushed down by investors scrambling to raise cash to repay cheap loans they'd used to finance risky investments.

Enticed by unusually strong global economic growth the past several years, many investors would engage in "carry trades," taking out loans in countries with rock-bottom interest rates (often Japan) to invest in markets elsewhere that offered higher potential returns, Ferns said. Now that those riskier investments are going sour, investors hustling raise cash to repay the loans, often denominated in Japanese yen. The process is driving down stocks and strengthening the yen — so much so that the U.S. dollar temporarily slipped below 100 yen Wednesday.