- The Washington Times - Wednesday, January 18, 2006

TOKYO (AP) — Japanese stocks plunged for a second day yesterday, bringing the market’s two-day loss to almost 6 percent as the exchange halted trading early amid investor jitters about a widening criminal investigation of Internet company Livedoor Co.

The sell-off was so heavy that the Tokyo Stock Exchange pre-emptively closed trading 20 minutes early to avoid overwhelming its computerized trading system — the first time the bourse has shut down early for capacity reasons.

The Nikkei 225 Index dropped 465 points, or 2.9 percent, to close at 15,341 points, its biggest one-day drop since May 10, 2004. The index had fallen 2.8 percent Tuesday.

“Individual and foreign investors are selling in a panic,” said Satoru Otsuka, senior economist at Mizuho Research Institute in Tokyo. “The problem is that we have no idea how the Livedoor problem will unfold.”

The so-called “Livedoor shock,” as dubbed by the Japanese news media, started Monday evening when Tokyo prosecutors raided the company’s offices to investigate charges the company had violated securities laws by giving false information.

Press reports yesterday said the probe had expanded, with the Yomiuri newspaper reporting that Livedoor is suspected of concealing an $8.7 million loss for the year ended September 2004.

The reports clearly spooked investors, some of whom may have been looking for an excuse to sell after the market’s 40 percent gain last year.

The decline also could be attributed to investor disappointment over earnings results Tuesday from U.S. chip maker Intel Corp. and Web giant Yahoo Inc., which were lower than analysts’ expectations.

Livedoor’s 33-year-old chief executive officer, Takafumi Horie, has denied any wrongdoing, and authorities would not comment on the Yomiuri report.

The case has attracted intense media attention partly because of the fame of Mr. Horie, an entrepreneur who has made unsuccessful attempts to buy media conglomerate Fuji Television Network Inc. and a baseball team.

Favoring jeans and T-shirts over business suits, Mr. Horie frequently appears on TV and is viewed as a challenger to Japan’s traditional business culture.

Livedoor, which Mr. Horie started in 1997, offers Internet services including consulting, telecommunications, mobile sites and software development. It also has bought up chunks of other companies and managed to raise money by offering more of its own stock — it is this area that has drawn prosecutors’ scrutiny.

Internet-related stocks like Softbank Corp. and Yahoo Japan were hit in the market sell-off, but blue-chip electronics companies like Canon Inc., Toshiba Corp. and Sony Corp. also fell.

Once it became clear the market was selling off for a second day, investors rushed to sell.

As the market became flooded with orders yesterday afternoon, the Tokyo Stock Exchange issued a warning it would stop trading if the system capacity limit of 4 million transactions was reached. When it reached 3.5 million about an hour before the session’s close, it announced it would stop trading 20 minutes early.

“The cause was threefold — Livedoor, America and a mess-up by the Tokyo Stock Exchange,” said Seiichi Miura, investment strategist at Mitsubishi UFJ Securities Co. “People got worried about what’s going to happen tomorrow if we can’t sell today.”

Confidence in the Tokyo exchange already was damaged by a system crash from a computer malfunction Nov. 1, when trade was suspended for all but the final 90 minutes.

The Tokyo exchange plans to delay the start of afternoon trading 30 minutes today, in anticipation of increased trading volume, Kyodo News agency reported.

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