TOKYO — *TC TOKYO -- Japanese financial reporters broke out words such as "panic" yesterday. Tokyo Stock Exchange traders found usually forbidden phrases such as "danger of a meltdown" passing their lips.
What shook them was a prospect that virtually everyone in Japan assumed was out of the question -- until this week. The exchange was alive with reports that some of the country's huge corporations were in at least their third day of desperately selling off big chunks of each other's stock.
The reports helped drive the exchange's most-quoted index, the Nikkei 225, from Tuesday's close of 17,791.55 to below 17,000 points late yesterday afternoon.
Bad news from Tokyo drove down markets around the world yesterday. The worst fall was in France, but blue-chip indexes also fell in Germany, Italy, Sweden and Switzerland. The leading Hong Kong index was off 2 percent and markets in Singapore, Australia and New Zealand also fell.
On Wall Street, the Dow Jones industrial average closed down 32.20 points at 3,181.35, after diving more than 50 points earlier in the day.
The reports of corporate stock sell-offs in Japan could not be confirmed, but they were so widespread by yesterday afternoon that newspapers and television broadcasts treated them as fact.
Such a sell-off of Japanese corporations' "cross-holdings," long regarded as part of the bedrock of this country's financial structure, would mark a dramatic change in the world's No. 2 economy.
The sell-off of cross-holdings also suggests that the heads of "Japan Inc." are losing confidence in each other's stewardship to such a degree that they are deciding to swallow billions of dollars in paper losses rather than risk losing more.
By yesterday's close, the market had narrowly avoided panic and meltdown for one more day. The Nikkei index managed to struggle back to 17,175.53 by the day's close, for a loss of 616.02, or 3.46 percent.
"There's no way to guess how much farther down it might go," broker Keiko Kawaguchi said after yesterday's close. "Emotions have taken over from economics."
Optimists expressed hope that the slide might stop somewhere around 15,000. But pessimists -- including analysts who have been accurate in forecasting the Nikkei -- worry that it might crash below 10,000.
Bureaucrats and politicians at the Ministry of Finance fell into unaccustomed silence. For a week, they had tried to talk the Nikkei back up into the 24,000-to-26,000 range.
Financial analysts abroad tried to calculate a Nikkei level that would markedly tighten the world's already scarce credit supply. Most concluded that the danger level was not far away, somewhere between 15,000 and 17,000.
Yesterday's close extended a series of sharp losses that has been all but uninterrupted since early March. Since March 16, when the Nikkei plunged below 20,000, the index is
down more than 14 percent. It has lost 12 percent in the past seven trading sessions -- 7 percent in the first three days of this week.
The Nikkei rose 343.24 points, or 2 percent, to end morning trading today at 17,518.77 after falling close to 17,000 at midmorning.
Hardest hit for the past three sessions have been the stocks of Japan's beleaguered big banks, which include most of the world's biggest.
At yesterday's close, Japanese bank stocks had lost 24 percent of their value in the same 11 trading sessions that have cost the overall Nikkei index 14 percent.
The banks have been under escalating pressure throughout Tokyo's 28-month bear market, which has stripped the Nikkei of more than 56 percent of its value from December 1989 to yesterday's close.
They face new international rules that require them to have capital equal to 8 percent of their outstanding loans by March 1993.
The Bank for International Settlements, which set the standard, gave the Japanese banks a break by letting them count part of the value of their huge stock holdings as capital. But that was before the bears took over the market in January 1990.
At yesterday's Nikkei levels, fewer than half of the 11 top banks are believed to meet the standard.
The New York Times and the Associated Press contributed to this article.