By Masaki Kondo Oct. 10 (Bloomberg) -- Japan stocks plunged, dragging down the Nikkei 225 Average to its second-biggest drop in history and triggering a suspension of futures trading, as the deepening credit crisis stoked concern that more companies will fail. Sumitomo Mitsui Financial Group Inc. slumped 10 percent, leading declines among banks, after Moody's Investors Service said it may cut Morgan Stanley's credit rating. Mitsubishi Estate Co., Japan's second-biggest property developer, plunged 9.6 percent, while T&D Holdings Inc., the country's largest publicly traded life insurer, dropped 10 percent after a real- estate investment trust and an insurer became the latest companies to file for bankruptcy protection. ``I've lost my appetite and my weight has decreased by 3 kilograms so far this year,'' said Seiichiro Iwamoto, who oversees the equivalent of $1 billion at Mizuho Asset Management Co. in Tokyo. ``I have to get myself ready for an even worse incident such as the collapse of a bigger company.'' The Nikkei 225 Stock Average declined 902.69, or 11 percent, to 8,254.80 as of 12:58 p.m. in Tokyo, the second steepest drop after a 15 percent tumble in 1987. Each of the gauge's constituents fell. The broader Topix index retreated 72.99, or 8.1 percent, to 832.12. The Nikkei and Topix were both headed for their worst weeks on record. The Nikkei, founded in 1949, retreated 25 percent and the Topix, started in 1969, lost 21 percent. The Osaka Securities Exchange and Tokyo Stock Exchange halted trading in Nikkei 225 Stock Average and Topix futures for 15 minutes after a plunge triggered a stop loss on each bourse. The futures were suspended because of a decline of more than 1,000 points and as the value of the underlying Nikkei average differed from the futures value by more than 200 points. Housing Slump A U.S. housing slump and subsequent crash in investments tied to the country's mortgage industry has locked up credit markets as banks reined in lending. The London interbank offered rate for three-month loans rose to 4.75 percent, the highest since Dec. 28. The so-called Libor is the most widely used benchmark for short-term interest rates. Sumitomo Mitsui, Japan's third-biggest publicly traded bank, fell 10 percent to 540,000 yen. Mitsubishi UFJ Financial Group Inc., the nation's biggest, slumped 8.4 percent to 711 yen. Mizuho Financial Group Inc. slid 11 percent to 333,000 yen. Mizuho has declared $6.8 billion of losses tied to U.S. mortgage investments, while Mitsubishi UFJ, which agreed to buy 20 percent of Morgan Stanley, lost $1.7 billion. Sumitomo Mitsui has posted $1 billion in losses. `Capitulation and Panic' Moody's put Morgan Stanley's A1 long-term credit rating on review for a possible downgrade, saying that the slump in financial markets may hurt profit next year, according to a statement. The ratings assessor also lowered its outlook for Goldman Sachs Group Inc.'s Aa3 long-term rating to negative. ``It's certainly capitulation and panic mode,'' said John Vail, who helps oversee about $106 billion as head of global strategy at Nikko Asset Management Co. ``It's dark in the U.S. much like it was dark in Japan in the late 90s. The U.S. is having a taste of that bitter chalice.'' Surging costs to dispose of non-performing assets prompted UBS AG to lower its ratings on Mizuho and Chuo Mitsui Trust Holdings Inc. to ``neutral'' from ``buy.'' Analyst Nana Otsuki also cut 12-month price estimates for Mitsubishi UFJ and Sumitomo Mitsui by as much as 33 percent. Mitsubishi Estate lost 9.6 percent to 1,615 yen. Mitsui Fudosan Co. slid 7.9 percent to 1,557 yen. Sumitomo Realty & Development Co. dived 8.8 percent to 1,725 yen. A gauge of real- estate companies had the biggest slump since September 1990. Toyota Motor New City Residence Investment Corp. filed for bankruptcy protection, becoming the country's first real-estate investment trust failure. Yamato Life Insurance Co. also filed for court protection from creditors in the nation's first bankruptcy in the industry in seven years. T&D Holdings lost 10 percent to 4,240 yen, and rival Tokio Marine Holdings Inc. fell 10 percent to 3,150 yen. Fuji Fire and Marine Insurance Co. dropped 20 percent to 167 yen, the sharpest decline in more than two decades. Toyota Motor Corp. dropped 5.3 percent to 3,200 yen on concern a U.S. recession will weigh on auto sales. Honda Motor Co., which gets more than half its profit from North America, sank 7.8 percent to 2,135 yen. Market researcher J.D. Power & Associates yesterday said U.S. car sales will fall 16 percent to 13.6 million units this year as consumers delay buying cars. In September, U.S. auto sales dropped 27 percent, the most since 1991, as tighter credit prevented potential buyers from taking out loans. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.

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