Several pieces of bad news combined to produce a big fall in Tokyo stocks on Monday morning, with the Nikkei 225 average dipping under the 10,000 mark for the first time since mid-August.

The Nikkei dropped 3.6 per cent to 9,796.80 by midday while the Topix index was down 3.3 per cent at 973.19.

Reports that Japan had been named a possible terrorist target by Al Qaeda dented market sentiment, as did a fall in US stocks on Friday and a regulatory order for some Japanese banks to increase their loan loss provisions.

Disappointing corporate earnings from technology stocks sent Wall Street shares down 0.7 per cent on Friday, making it difficult for Tokyo to make a flying start to the new week.

Japanese chip equipment makers felt the impact directly, with Advantest down 5.9 per cent at Y7,560 and Tokyo Electron off 6.7 per cent at Y7,250.

Last Friday, the Financial Services Agency said that after follow-up inspections of Japan's major banks, it had lowered the internal ratings on some, forcing them to increase loan loss charges for the six months to September.

Japan's big five banks all fell by more than 5 per cent, with Mizuho down 7.9 per cent at Y221,000, SMFG 5.2 per cent lower at Y470,000 and MTFG off 5.4 per cent at Y383,000. Resona tumbled 9 per cent to Y122 and UFJ was down 5.4 per cent at Y383,000.

Worries about the effects of regulatory pressure on banks sent construction stocks, many of which depend on bank support, lower.

Haseko was down 16.8 per cent at Y149 and Towa Real Estate tumbled 17 per cent to Y156.

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