But the Japanese economy is particularly vulnerable. The steep decline of the Nikkei, which finished the week down 4% threatens to upset a delicate balance Japan has maintained in recent months between painful restructuring and upbeat prospects for the economy in the future. Optimism has rested on two hopes: that Japanese consumers will soon respond to rising corporate confidence by increasing their own household spending, and that Japan will enjoy the same technology revolution upon which US investors have been betting at home. The sudden stock decline raises questions about both propositions. Japanese consumers were spooked repeatedly in the l990s by volatile financial markets, and the current gyrations come at a particularly sensitive time. Consumers were hit last week with news of Japan's largest-ever bankruptcy, when Chiyoda Mutual Life Insurance Co. failed.

Then, on Friday, another major failure appeared to be at hand when a consumer credit-card company, Nippon Shinpan Co., said it was considering liquidating a finance affiliate called Inter-Lease. The failure of Inter-Lease would be Japan's sixth-largest ever, with debts totalling $7.4 billion. Recent similar failures have caused consumer spending to slip.

Household spending fell in August, for example, after the bankruptcy of a major retailer was in the headlines for weeks. In the past, a more buoyant stock market at least served as a reminder that investors viewed such bankruptcies positively, as part of the necessary process of clearing away deadwood companies. But the stock market is no longer sending bullish signals. Meanwhile, the demise of technology stocks in the US takes some of the lustre off hopes that Japan's economy will be propelled forward as a revolution in information technology and telecommunications forces companies to invest more. Those hopes are strong in Japan.

Machinery orders posted their biggest jump in four years in August, boosted in part by telephone companies scrambling for mobile-phone parts. That could presage a further pickup in capital spending. "The hope is that Japan follows the same path as the US," says Ron Bevacqua, an economist with Commerz Securities. But technology stocks have been taking a beating in the US, where the performance of New-Economy companies from Lucent Technologies Inc. to Yahoo! Inc. fell short of investor expectations. That could cool some of the hopes that similar technology companies will spur on Japan's recovery. One bellwether Japanese technology company, Softbank Corp., saw its shares drop sharply last week, in part because Softbank is a major holder of Yahoo! stock.

On Friday, Softbank, which has generated most of its profits in recent years by selling portions of its portfolio of Internet companies, announced it had arranged a 150-billion-yen ($1.39 billion) line of credit with 10 banks in case it needs cash. The company said it isn't experiencing any immediate difficulties. All this is happening at a time when the economic outlook has been its brightest in years; private economists forecast that economic output will rise some 2% in the year ending next March. Japan's problems could become more serious if the falling US stock market undermines the stellar performance of the US economy.

Between 1997 and this past June, the only area of the Japanese economy that expanded was net exports, contributing 1.2% growth during a period when the overall economy shrank 3.4%, and much of that export performance has been the result of the US economic juggernaut, according to Mr. Bevacqua. Exports to the US have been an important part of the economy's improved performance this year. The volume of direct exports to the US is up 6% through August, compared to the same period a year earlier. Exports to the rest of Asia, many of which are used to make products destined for the U.S. market, are up 21% during that time, says Mr. Bevacqua.

(Phred Dvorak contributed to the article)