TOKYO: Japanese stocks plunged Wednesday to their lowest level in more than two years as investors fretted about an overnight dive on Wall Street amid a growing conviction that the U.S. is headed toward a recession.

The benchmark Nikkei 225 stock index lost 468.12 points, or 3.35 percent, to 13,504.51 points on the Tokyo Stock Exchange. That was the lowest finish since Oct. 28, 2005. It also brought the indexs year-to-date loss to 11.8 percent in 2008.

The yens surge and speculation that weaker demand from American consumers send shares of major exporters Toyota, Sony and Honda tumbling.

Investors reacted anxiously to news of weak U.S. retail sales figures and that Citigroups announcement that it lost nearly $10 billion in the fourth quarter and write down $18.1 billion write-down for bad mortgage assets. In New York Tuesday, the Dow Jones industrial average down 277.04, or 2.17 percent, to 12,501.11, the latest in a string of triple-digit slides.

“Fears about an American recession and the decline in American shares set off selling in Tokyo,” said Noritsugu Hirakawa, who monitors stock trading at Okasan Securities in Tokyo.

The dollar fell below 106 for the first time since May 2005, further damping sentiment. A strong yen generally pushes down the earnings of Japanese exporters.

“The Tokyo market is very sensitive to the strong yen,” said a Daiwa Securities analyst, Tsuyoshi Nomaguchi.

Toyota Motor fell 3.97 percent, Honda Motor fell 4.90 percent, and Sony plunged 6.76 percent.

Semiconductor stocks also fell after Intel shares plunged overnight on concerns that the worlds largest semiconductor maker is feeling the pinch of an ailing U.S. economy. Kyocera fell 1.34 percent, while Elpida Memory plummeted 6.78 percent.

The broader Topix index, which includes all shares on the exchanges first section, shed 47.83 points, or 3.54 percent, to 1,302.37.

POLICE in Malta were continuing a “full-scale” investigation into sightings of Madeleine McCann yesterday, as her parents marked the 50th day she has been missing with a worldwide balloon release.

Two tourists reportedly saw a girl in Valletta on Saturday who matched the four-year-old’s description.

Subsequent reports said four other people had come forward with possible sightings on the island.

Gerry and Kate McCann yesterday released 50 yellow helium-filled balloons on the beach at the Algarve resort of Praia da Luz, where Madeleine was staying when she went missing on 3 May. Similar events were held across the globe.

The McCanns also revealed they were considering releasing a cover version of Bryan Adams’ hit song Everything I Do, I Do It For You to raise money for their campaign.

And, in an open letter thanking British news organisations for their help, they said they were convinced their daughter was still alive.

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(12-10) 10:55 PST New York (AP) —

Treasury prices dropped Monday as bond market investors tried to gauge Federal Reserve monetary policy a day ahead of a critical Fed decision on rates.

Many bond market investors believe the Fed is likely to cut rates Tuesday, but that the reduction likely will only be 0.25 percentage point and that it will mark the final easing in this cycle.

In prior weeks, investors were more convinced that a 0.50 percentage point rate cut is possible this week and that future Fed meetings would bring additional easings.

“The Treasury market is trading lower this morning as more and more investors feel that the Fed is close to the end of its short-term ‘ease cycle’ and that the U.S. economy is not as weak as many thought,” said Kevin Giddis, managing director of fixed income at Morgan Keegan.

“There is also the thought that the rate reductions by the Fed have a future price: inflation.”

The bond market always keeps inflation in its sights because higher price pressures dent into the value of fixed income instruments. Still, the market would welcome a rate cut Tuesday because it would stimulate strained capital markets.

The benchmark 10-year Treasury note fell 19/32 to 100 23/32 with a yield of 4.16 percent, up from 4.12 percent late Friday. Prices and yields move in opposite directions.

The 30-year long bond dropped 1 107/32 to 105 30/32 with a yield of 4.63 percent, up from 4.58 percent on Friday.

The 2-year note fell 3/32 to 99 30/32 with a yield of 3.15 percent, up from 3.10 percent rom late Friday.

As the year draws to a close, the Fed is under unusually strong pressure to make sure financial markets are liquid, and this has increased certainty that the central bank is likely to cut rates Tuesday.

The need to keep money in circulation always increases right before the year-end as consumers ramp up their spending for the holidays and institutions grapple to square their books and improve their balance sheets. These usual seasonal pressures this year are compounded by the fact that credit markets are over-stressed.

“This year, in addition to seasonal needs for money in the financial system, the Federal Reserve must contend with extraordinary demands for liquidity, the likes of which have not been season at year’s end since 2000 when concerns about the impact of the advent of the millennium were rampant,” said Tony Crescenzi, fixed-income analyst at Miller Tabak.

New real estate sector data Monday backed the view that the economy may not be weak enough for the Fed to sustain a series of rate reductions beyond Tuesday. However, it is also thought that in the current cycle, the Fed’s decisions are based as much on concerns about the health of the credit markets as on indications about the strength of the broader economy.

The National Association of Realtors reported that its pending home sales index rose 0.6 to 87.2 in October from 86.7 in September. The September level was revised higher from an original reading of 85.7 and followed two large declines in July and August.

“The back to back monthly gains and slowing in the year on year slide gives some hope that the worst might be over for the housing market,” said Action Economics. ”

“The data are of interest, but ahead of tomorrow’s Fed decision and more important economic reports later in the week, there won’t be much market reaction this morning.”