The Nikkei stock average of the Tokyo Stock Exchange fell 385.82 points to 13,597.30, the lowest finish since February 25, 1986, after touching a low of 13,580.72 points in late trading.

Share prices fell as investors demonstrated their dismay that a fragile political deal between the ruling and opposition camps to clean up the finance sector appeared close to collapse.

``We thought the agreement last week may help the market rally, but negotiation on details is not making smooth progress,'' Kosaku Inaba at Kaisei Securities Co Ltd said.

The key dispute is over ailing Long-Term Credit Bank of Japan Ltd. The opposition insists the agreement will see it nationalised, but the ruling party is reportedly still pushing for public funds to be injected. The fresh uncertainty broke out over the weekend when senior ruling LiberalDemocratic Party officials said the agreement struck with the opposition would not necessarily lead to LTCB being nationalised.

Concerns prompted active selling of banks, with selling here spilling over to the entire market, brokers said. The Topix index of all first-section shares closed down 25.43 points at 1,047.79 with turnover shrinking to an estimated 380 million shares from Friday's 453.9 million shares.

``Asian stocks are obviously falling in reaction to Tokyo's weakness as their markets were not moving in line with the New York market on the previous day as usual,'' Takeshi Segawa at New Japan Securities Co Ltd said.``Some said Japanese stocks extended losses in the afternoon on Asian market declines, but it is clear that Tokyo investors did not like the shaky agreement and simply sold more,'' he added.

Prime Minister Keizo Obuchi secured the 11th-hour agreement on Friday and aims to present it to US President Bill Clinton at a New York summit Tuesday as a sign of Tokyo's determination tourgently address its financial malaise.``There was supposed to be an agreement on Friday night and now neither political side can agree what the agreement is,'' said Russell Jones, Chief economist at Lehman Brothers. ``The net result is that banking policy is still a horrible mess and Obuchi Has zero credibility in Washington. It does not add up to a very good backdrop,'' he added.

On the trading floor, LTCB edged up two yen, or 10.5 per cent, to close at 21 yen, becoming the sole gainer among bank leaders thanks to modest buy-backs after recent sharp sell-offs, brokers said.

LTCB's planned merger partner, Sumitomo Trust, lost 19 yen, or 5.0 per cent, to 360 yen. Sumitomo Bank fell 49 yen, or 4.5 per cent, to 1,051 as Bank of Tokyo-Mitsubishi shed 61 yen, or 5.8 per cent, to 984.

Selling also hit securities houses on worries that declining share prices would pressure their trading gains in the six months to September, coupled with their exposure to emerging markets.

Nomura fell 64 yen, or 5.8 percent, to 1,046 as Daiwa shed 19 yen, or 4.8 per cent, to 382. Sony fell a sharp 340 yen, or 3.5 per cent, to 9,410, ending near its low of 9,400, the lowest level since early 1997. Foreign investors were taking profits on its steady gains from the 1995 low of 4,000, brokers said.

Hitachi ended unchanged at 556, with late bargain-hunting erasing early losses. NEC closed down two yen at 882, with its earnings downgrade late Friday coming as little surprise. TDK was down 440 yen, or 4.9 per cent, at 8,610, due to worries over its exposure to Russia's debt default.

Meanwhile, Malaysian stock prices ended morning trade 1.9 per cent lower Monday following clashes in the capital between police and supporters of detained former deputy premier Anwar Ibrahim. The key Kuala Lumpur Stock Exchange's (KLSE's) composite index closed the morning down 7.50 points to 385.80. ``So far, all these (events) have been unprecedented. I wonder how much resolve Anwar's supporters have,'' a dealer said. ``It is a bit scary and istranslating into selling on the KLSE but there is some buying support too, keeping the falls from getting bad,'' he said.

Anwar will be held under the draconian Internal Security Act (ISA), police said Monday. Under that law, he can be detained indefinitely without trial.Police chief Abdul Rahim Noor told Bernama news agency that Anwar, arrested at his home on Sunday night, would not be produced in court Monday as earlier reported.

Indonesian share prices closed the morning down 3.9 per cent Monday as lingering concerns over the possible imposition of foreign exchange controls dampened sentiment, brokers said.

The Jakarta Stock Exchange composite price index was down 10.548 points at 261.123 at noon.