Aug. 17 (Bloomberg) -- Japanese stocks plunged, sending the Topix index to its biggest weekly drop since the end of the asset inflation `bubble' of the 1980s. The Nikkei 225 Stock Average had its worst daily performance since the Sept. 11, 2001, terrorist attacks.

Nintendo Co. fell by its daily limit, after the yen rose to the strongest in a year against the dollar as investors unwound so- called carry trade bets on high-yielding assets funded by yen loans. Toyota Motor Corp. dropped the most in six years.

Sumitomo Metal Mining Co. tumbled the most since 1999, leading declines in commodities-related shares after a measure of six metals traded on the London Metal Exchange, fell the most since 2005.

``It's become a race to reduce risk,'' said Satoru Asatani, a fund manager at Shinko Investment Trust which oversees more than $8.9 billion in assets. ``People don't care about the valuations now, they're just selling whatever they can.''

The Nikkei 225 lost 874.81, or 5.4 percent, to 15,273.68, at the close of trading in Tokyo, the biggest percentage drop since Sept. 12, 2001, the day after hijacked jets slammed into the World Trade Center's twin towers in New York.

The broader Topix slumped 87.07, or 5.6 percent, to 1,480.39, the lowest close since July 19, 2006. About 20 stocks dropped for each one that advanced on the first section of the Tokyo Stock Exchange.

Move to Cash

For the week, the Topix tumbled 9.4 percent, its worst week since September 1990 at the end of 12 years in which asset prices soared and the Nikkei reached a record 38,915.87. The Nikkei retreated 8.9 percent this week, the biggest drop for the period since April 2000.

Stocks fell worldwide this week as a credit crunch sparked by losses on U.S. subprime mortgage investments forced investors to liquidate assets. Central banks injected money into the market in an attempt to provide liquidity. The Bank of Japan added 1.2 trillion yen ($10.7 billion) into the money market today.

Losses accelerated in the afternoon amid speculation that institutions were executing automatic stop-loss orders to guard against any further declines and that individual investors were forced to sell shares in order to pay back loans from brokerages they used to buy stock.

Falling By Limit

Nintendo, Japan's second-largest video-game maker, plunged by the exchange imposed daily limit of 5,000 yen, or 9.7 percent, to 46,700 in Osaka. Toyota, the world's largest automaker by value, tumbled 480 yen, or 7.2 percent, to 6,190, the biggest drop since January 2001. Honda Motor Co., Japan's second-largest automaker, lost 310 yen, or 8.2 percent, to 3,470, declining the most since October 2002. Canon Inc., the world's largest seller of digital cameras, slid 510 yen, or 8.6 percent, to 5,400.

``The stronger yen prompted overseas investors to sell Japanese stocks to raise cash rather than put new money into the market,'' said Tomokatsu Mori, who helps oversee $7.4 billion in Tokyo at Fukoku Capital Management Inc. ``It's still too early to expect their return to the market.''

The yen climbed to as high as 112.01 against the dollar yesterday in New York, the strongest since June 2006. Japan's currency recently traded at 112.55 to the dollar, from 116.09 at the close of stock trading in Tokyo yesterday. Versus the euro, the yen climbed as much as 4.3 percent yesterday.

A stronger yen decreases the value of Japanese exporters' overseas sales when converted back into local currency.

Commodities Tumble

Investors borrow funds in low-yielding currencies such as the yen to fund purchases in higher yielding assets abroad, a practice referred to as the carry trade. Volatility in the market increases the risk of those bets and has been a primary reason for investors to pay back their yen loans, boosting the currency's value.

``We've been warning about the weakness in the yen for a long time,'' said Jeremy Hall, who helps oversee $3.5 billion at Henderson Global Investors Ltd. in Singapore. ``I'd be surprised if there'll be the same appetite for the carry trade as in the past.''

Sumitomo Metal Mining, Japan's biggest nickel producer, fell 380 yen, or 16 percent, to 1,940, the steepest slide since Oct. 1, 1999. Sumitomo Corp., the nation's No. 3 trading house, dropped 199 yen, or 10 percent, to 1,784.

The London Metal Exchange's commodity index tumbled 6.1 percent yesterday, the biggest drop since January 2005. Copper futures slid 7.7 percent and nickel slumped 5.2 percent.

Crude oil for September delivery fell 3.2 percent to $71 a barrel in New York, the lowest since June 29. It was recently at $71.40.

Few Bright Spots

Domestic-demand related companies were among the few shares to gain today as investors snapped up companies that are less affected by the strengthening yen.

KDDI Corp., Japan's second-largest mobile-phone operator, jumped 31,000 yen, or 3.7 percent, to 868,000. Meiji Dairies Corp., which produces ice cream and may benefit from increased demand as Japan marks record high temperatures this summer, added 15 yen, or 2.4 percent, to 648.

``Some investors are considering switching to domestic demand- related stocks as a safe haven to minimize risk,'' said Fukoku's Mori.

About 2.9 billion shares worth 4.2 trillion yen ($37 billion) included in the Topix changed hands. Volume was 36 percent more than the three month average, while the value of shares traded was 43 percent higher than the 90-day average.

Canon Inc. (7751 JT)
Honda Motor Co. (7267 JT)
KDDI Corp. (9433 JT)
Meiji Dairies Corp. (2261 JT)
Nintendo Co. (7974 JO)
Sumitomo Corp. (8053 JT)
Sumitomo Metal Mining Co. (5713 JT)
Toyota Motor Corp. (7203 JT)

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Makiko Suzuki in Tokyo at msuzuki13@bloomberg.net.

Last Updated: August 17, 2007 14:31 EDT