Japan's Nikkei slid 3.2 percent to hit a 4-month closing low on Friday for a fifth straight week of losses, hurt after the yen touched a 14-year high against the dollar and debt problems surfaced in Dubai.
Honda Motor Co and other exporters skidded on the stronger yen, while Japan's top bank Mitsubishi UFJ Financial Group slipped as banking shares were hurt by concerns about their exposure to Dubai's debt.
Worries about Dubai also hit Obayashi Corp which plunged after a brokerage cut its rating on the construction firm, partly on the prospect of losses on a project it has in the emirate. The benchmark Nikkei lost 4.4 percent on the week for its fifth straight week of losses, a negative run unseen since June-July 2008.
"I think we won't know the full impact of Dubai until Monday after we see what happens in New York, where bank shares are likely to be hit pretty hard," said Masayoshi Okamoto, head of dealing at Jujiya Securities in Tokyo.
"For Tokyo today, though, I think the strong yen is perhaps a bigger issue than Dubai."
U.S. stock futures were down more than 3 percent.
Dubai said on Wednesday it wanted creditors of Dubai World and property group Nakheel to agree a debt standstill as it restructures Dubai World, the conglomerate that spearheaded the emirate's breakneck growth. The benchmark Nikkei lost 301.72 points to 9,081.52, coming within a hair's breadth of its July low of 9,050, while the broader Topix shed 2.2 percent to 811.01.
The Nikkei has gained a mere 2.5 percent for the year to date, compared to a 19 percent gain for the Dow and a 38 percent climb for the Nasdaq.
FUTURE FEARS
Market players said that with the Nikkei having fallen through support at the level of its 200-day moving average around 9,360, there are few substantial support levels ahead.
"There's some support at 9,050, the July low, but that's mainly psychological," said Jujiya's Okamoto.
The 50 percent retracement from the Nikkei's rise to an end-August peak of 10,767 from the early March trough just above 7,000 comes in just above 8,900.
Though analysts said Nikkei falls might be limited compared to overseas markets since Japanese shares have been falling steadily when other markets held up, fears that a recovery for the global economy might suffer more setbacks weighed.
"Similar stories to this Dubai one are likely to continue to come out, leading risk money to pull out from assets such as commodities and stocks," said Takahiko Murai, general manager of equities at Nozomi Securities.
The dollar hit its lowest level in 14 years against the yen as investors unwound risk trades amid concerns about the debt problems in Dubai. The greenback fell as far as 84.82 yen before rebounding back above 86.00.
The stronger yen eats into exporters' profits when they are repatriated.
Honda lost 3.8 percent to 2,660 yen and Toyota Motor Corp slid 2.4 percent to 3,300 yen. Canon Inc shed 2.7 percent to 3,200 yen.
Among banks, Mitsubishi UFJ Financial Group, Japan's largest lender, fell 2.2 percent to 444 yen and no. 3 bank Sumitomo Mitsui Financial Group shed 3.7 percent to 2,620 yen. Mizuho Financial Group retreated 3.9 percent to 148 yen.
Shares of Toshiba Corp fell 4 percent to 429 yen after Reuters reported that Toshiba made the highest bid for Areva's transmission and distribution unit, and that it planned to fund 2.4 billion of its 4.5 billion euro bid with equity financing.
Obayashi fell 8.7 percent after J.P. Morgan downgraded it to "neutral" from "overweight".
"We think losses related to the Dubai City Transport System (railways) project could emerge from the 2010 business year, and we expect orders and earnings to decline due to a delayed recovery in private sector capex and lower spending on public works," wrote analyst Hirokazu Anai.
Other construction companies also fell, with Kajima Corp, which Anai said may also see losses on a Dubai project, falling 14.3 percent to 162 yen and Taisei Corp down 7.1 percent.
Trade was active, with 2.2 billion shares changing hands on the Tokyo exchange's first section compared to last week's daily average of 2.1 billion.
Declining shares outnumbered advancing ones by more than 4 to 1.
