Tokyo stocks hit 26-year low

The Nikkei-225 dropped 112.11 points, or 1.57 percent, to 7,050.79, the weakest since October 1982 before the country's economic bubble.

Trading was extremely volatile with the benchmark index swinging in and out of positive territory a day after plunging 6.36 percent.

‘There are no reasons to buy other than short-covering (buying shares to close a sell position),’ Akira Ishida, head of equities department at Chuo Securities, told Dow Jones Newswires.

‘Few market players are confident about any support levels.’

Banking shares were under pressure after Mitsubishi UFJ Financial announced plans late Monday to sell new shares worth up to 990 billion yen (10.5 billion dollars) to bolster its balance sheet amid the financial crisis.

Canon shares dropped more than five percent after the technology giant forecast its first fall in net profit in nine years.

News that Japanese retail sales dropped 0.4 percent in September from a year earlier, the first decline in 14 months, did little to boost sentiment.

Stocks fell on Wall Street overnight on concern that a looming recession will spark increased layoffs and weaker corporate profits. The Dow Jones Industrial Average ended down 2.42 percent.

Sentiment in Europe was shaken by news that business confidence in Germany, the eurozone's largest economy, plunged to a five-year low in October.