TOKYO, Nov 25: Tokyo stocks tumbled on Tuesday, as anxious investors rushed to dump financial sector shares one day after "Big Four" brokerage Yamaichi Securities Co went bust in Japan's biggest-ever business failure, brokers said.

The market's benchmark Nikkei average of 225 leading shares fell more than five per cent in early afternoon trade, hitting a low of 15,840.36 before managing to steady, with no buyers for most shares in banks and brokerages in edgy trade.

The stock plunge helped push the dollar above 127.00 yen in morning Tokyo trade and boosted the most-active Japanese government bond futures contract by more than a full point.

"The supply-and-demand conditions in the market worsened rapidly after the collapse of Yamaichi Securities," said an official at a second-tier Japanese brokerage firm. The Nikkei average plunged below the psychological 16,000 mark, while the most-active Nikkei futures briefly slid by their daily limit of 1,000 points late in the morning.

Yamaichi, in its 100th year of business, said on Monday that it would close after failing to find a way out of a crisis born of a credit crunch, shrinking business, a racketeering scandal and allegations of illegal deals and hidden debt.

The news sent nervous shivers through world markets on Monday while the Japanese financial markets were shut for a national holiday.

"The news of the failure itself was not such a surprise but sales of stocks held by Yamaichi-related firms were much larger than expected, resulting in the slide," Daiwa Securities general manager Mamoru Otani said.

Japanese brokers returning from a three-day holiday said worries that investors might decide to dump investment trusts or cut ties with Yamaichi-affiliated asset management companies were casting a dark shadow over the market.

According to market estimates, Yamaichi trust fund assets are worth about 1.1 trillion yen ($ 8.6 billion).

An overwhelming volume of sell orders also triggered a temporary halt in some stock futures trading on Tuesday morning as circuit breakers were activated separately on the Tokyo and Osaka exchanges.

This was the second time this year that the two stock exchanges took price-smoothing measures.

The sharp slide in Tokyo stocks triggered alarms for Japanese economic policy markers and forced them to consider once unthinkable measures, including the use of taxpayers' money to mop up a bad loan mess at the nation's financial institutions.

Finance minister Hiroshi Mitsuzuka said the ministry will keep a close watch over movements in domestic and overseas financial markets after Tuesday's plunge in Tokyo share prices.

Economic planning agency minister Koji Omi also said in a separate news conference that Japan was considering every option including the use of public funds to protect depositors and investors and to stabilise the nation's financial system.

The latest nosedive in Tokyo stocks gave mixed clues to the foreign exchange market, with traders saying that it may spur Japanese investors to sell US treasuries in order to secure dollar-denominated funds.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.