March 17 (Bloomberg) -- Japan's stocks plunged to the lowest in more than two years after JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for $2 a share and the U.S. Federal Reserve cut lending rates to banks at an emergency meeting.

Shinsei Bank Ltd. and Japan Securities Finance Co., which both last week disclosed writedowns on overseas debt, led a plunge in financial shares. Sony Corp. led exporters lower after the yen rose to the highest against the dollar since 1995.

``The $2 price for Bear Stearns tells everything about how bad the operating situation is for brokerages,'' said Naoki Fujiwara, chief fund manager in Tokyo at Shinkin Asset Management Co., which manages the equivalent of $5.7 billion. ``Investors worry other securities companies are in a similar situation.''

The Nikkei 225 Stock Average sank a third day, losing 454.09, or 3.7 percent, to close at 11,787.51, the lowest since Aug. 8, 2005. The broader Topix index dropped 43.58, or 3.7 percent, to 1,149.65. All 33 industry groups on the benchmark fell.

The Fed's decision, taken at an emergency gathering before the Asian trading day, aims to prevent further financial market collapse. It coincided with JPMorgan buying Bear Stearns for about $240 million, less than a 10th of its value last week. The Fed will help finance the bailout.

Shinsei Bank, the first Japanese bank acquired by foreign buyers, tumbled by a record 11 percent to 337 yen and has lost one-fifth of its market value in the past three trading days. The company cut its operating-profit target by two-thirds on March 13 due to losses linked to U.S. mortgage investments.

CDO Writedowns

Japan Securities, the nation's largest stock lender, dove 12 percent to 541 yen, the lowest since February 2004. On March 14, the company forecast its first-ever loss because of a writedown on collateralized debt obligations linked to companies in Europe and the U.S.

``What happened to Japan Securities spurred concern among investors that other brokerages will incur losses as well,'' said Kazuya Nakamura, who helps oversee the equivalent of $10 billion at Norinchukin Zenkyoren Asset Management Co. in Tokyo.

Nomura Holdings Inc. Japan's biggest brokerage, fell 4.4 percent to 1,413 yen, while Chuo Mitsui Trust Holdings Inc., the nation's sixth-biggest publicly traded bank, declined 9.4 percent to 550 yen. Consumer lender Aiful Corp. retreated 7.4 percent to 1,556 yen.

The Nikkei has tumbled 8.4 percent in the past three sessions, bringing its loss for the year to 20 percent.

Sony, which gets a quarter of its electronics sales from the U.S., lost 5.7 percent to 3,960 yen, the lowest since November 2005. Nomura Securities Co. cut its rating on the company today saying any additional gains in the yen will be impossible for Sony to absorb.

Rising Yen

The dollar declined to as low as 95.76 yen, the weakest since Aug. 14, 1995, from 99.09 yen in New York on March 14. The Fed today cut the rate on direct loans to commercial banks by a quarter of a percentage point to 3.25 percent.

A 1 yen change against the dollar affects Sony's operating profit by 6 billion yen ($62 million) a year, the company said on Jan. 31. Sony expected the yen to average 105 in the three months to March 31.

``We've set up our portfolio based on the assumption the yen won't strengthen beyond 95,'' said Norinchukin Zenkyoren's Nakamura. ``If the yen continues rising, we'll have to revise our assumptions and estimates for companies earnings.''

Mazda Motor Corp., which exports 80 percent of its domestic production, plunged 5.9 percent to 337 yen, the lowest since January 2005. CLSA Asia-Pacific Markets cut its ratings on Japanese automakers including Mazda, Honda Motor Co. and Nissan Motor Co. Honda, Japan's second-largest carmaker, dropped 4.1 percent to 2,695 yen, while smaller rival Nissan slipped 5.1 percent to 800 yen.

Hitachi Ltd., Japan's second-largest plasma-television maker, lost 8.5 percent to 621 yen, the steepest drop since September 2001. The company said on March 14 a wider-than-expected loss at its flat-panel TV business and a tax writedown forced it to reverse its profit forecast to a net loss of 70 billion yen.

Nikkei futures expiring in June retreated 3.7 percent to 11,750 in Osaka and slumped 3.8 percent to 11,805 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

Last Updated: March 17, 2008 04:03 EDT