TOKYO Nov 7: Tokyo stocks plunged below the key 16,000 mark on Friday for the first time in more than two years as worries spread about Japan's economy and the state of its fragile banking sector. The 225-share Nikkei tumbled 4.2 per cent, 697.51 points, to close at 15,836.36.

The share sell-off was sparked in part by a newspaper report, later denied, that a leading regional bank would unload all the shares it holds in other firms over two or three years. The institution, the Bank of Yokohama, strongly denied the report.

However, brokers said the report exacerbated concerns that Japanese banks and other corporations would speed up the unravelling of cross-shareholdings - maintained between firms to cement ties - which were once a pillar of Japan's postwar economic structure. "It's a serious worry," said Pelham Smithers, a strategist at ING Barings in Tokyo. "But I think today's fall has more to do with the issue of whether Japan's banking industry is solvent or not. Point number two is that everyone thinks the rest of theeconomy is in recession...even though anybody who lives here realises things are going along as normal."

Another broker said the market could eventually fall close to the 14,000 level, the low hit after the collapse of the "bubble economy" in the early 1990s. Persistent worries about the impact of Asia's economic turmoil on Japan's economy, as well as the lingering effect of the failure of Sanyo Securities earlier this week, also dampened sentiment and battered financial firms' share prices.

The dollar, meanwhile, jumped to 124.00 yen in mid-morning trade, its highest level since May 8 and up from about 123.30 yen in New York late on Thursday. The greenback eased back slightly later on profit-taking and was quoted at around 123.75 yen in late-Tokyo trade. US and Japanese authorities have kept silent during the dollar's recent rise, possibly due to fears that a weakening of the US currency would jolt global financial markets, which have already been unnerved by Asia's currency crisis.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.