TOKYO: The Nikkei benchmark average dropped on Thursday and looked set to break below 8,400 after US stocks tumbled on mounting fears about contagion from Europe's debt market woes.
Embattled Olympus Corp jumped more than 16 percent in heavy trading, continuing to climb for a fourth consecutive session, as fears of a delisting subsided among market participants.
Fumiyuki Nakanishi, a strategist at SMBC Friend Securities that since the index broke below 8,500 on Wednesday, market participants were now focused on its Oct. 5 low of 8,382.98.
"The general feeling that the Bank of Japan will buy ETFs (exchange traded funds) and prevent the market from bottoming out is one of the few things that is supporting the Nikkei," he said.
Bond market turmoil is spreading across Europe, with Italian 10-year bond yields rising back above 7 percent, while yields on bonds issued by France, the Netherlands and Austria -- which along with Germany form the core of the euro zone -- have also climbed.
The Nikkei dropped 0.5 percent to 8,424.16, while the broader Topix index shed 0.4 percent to 721.62.
Wall Street fell, with selling accelerating late in the session after a Fitch Ratings report warned that US banks have direct exposure to stressed European markets and that contagion poses a serious risk.
Bank of Japan Governor Masaaki Shirakawa, speaking after a two-day policy review on Wednesday, said that Europe's debt crisis may trip up the global economy, although the central bank refrained from further action.
Strategists said the yen's strength against the euro was another negative factor pressuring the market.
Olympus soared 16.6 percent to 865 yen, and was the heaviest traded share by turnover on the main board.
Olympus executives offered a plan to its lenders on Wednesday to shrink its interest-bearing debt by about 260 billion yen.
The president of Olympus told staff in an email obtained by Reuters on Wednesday that it is preparing to take legal action, including possible criminal suits, against any executives found responsible for the accounting scandal engulfing the company.
TDK Corp added 6.5 percent to 3,455 yen and was the second-heaviest traded share by turnover after Western Digital said it entered into an agreement with TDK subsidiary SAE Magnetics for the supply of components for hard disk drives. The supply tie-up will begin from the first calendar quarter of 2012.
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