TOKYO-JAPAN'S stock market had a miserable and manic Monday, with the key stock index plunging more than 6 per cent on Monday to its lowest close in more than a quarter century.

Unnerved by the financial crisis fallout and the yen's recent surge, investors unloaded banks and exporters as they grew increasingly gloomy about the outlook for the world's No. 2 economy.

The Nikkei 225 index shed 486.18 points, or 6.36 per cent, to 7,162.90 - the worst closing level since October 1982. The benchmark has lost more than 20 per cent since last Monday and nearly 40 per cent in the last month.

The broader Topix index posted an even steeper fall of 7.4 per cent to 746.46.

Trading Monday was extremely volatile, with the Nikkei swinging from a 3 per cent gain at one point in the morning to a retreat of as much as 6 per cent in the afternoon.

A move earlier in the by Japanese Prime Minister Taro Aso to introduce measures to calm volatile stock markets failed to revive flagging sentiment.

Calling an emergency meeting of the Cabinet and ruling party officials, Mr Aso urged steps including tighter controls on short-selling and expanding a government fund to recapitalise banks to as much as 10 trillion yen (S$160.19 billion) from 2 trillion yen, according to Kyodo news agency.

'Stock prices are having a major impact on the real economy,' Mr Aso told reporters after the meeting. 'We need to consider and implement different strategies.'

Although Mr Aso did not suggest intervention in foreign exchange markets, the Group of Seven finance ministers and their countries' central bank governors expressed concern on Monday about the yen's recent movements.

The Japanese currency surged Friday to a 13-year high as investors unwound yen carry trades, in which the yen is borrowed and then invested in other currencies with higher yielding bonds and other assets. When investors unload such investments, they were forced to buy back the yen, boosting its value.

The dollar was trading at 92.86 yen from 94.24 late on Thursday in New York. It had fallen as low as 90.89 yen to the dollar on Friday, its lowest since August 1995.

Exporters are likely to get battered by the stronger yen, which makes Japanese products more expensive abroad and reduces the value of overseas profits when repatriated.

Toyota Motor Corp. shed 8.12 per cent to 2,940 and Nissan Motor Co. lost 8.39 per cent to 404 yen after reporting that global vehicle production declined in September due to a prolonged slump in the US auto market.

Financial names tumbled sharply following media reports that Japan's major banks were considering raising new capital by issuing new stock.

Top Japanese bank Mitsubishi UFJ Financial Group Inc. is looking to raise up to 1 trillion yen to bolster its balance sheet, weakened by its US$9 billion investment in Morgan Stanley, the Nikkei financial daily said on Sunday.

Mitsubishi UFJ plummeted 14.64 per cent to 583 yen, Sumitomo Mitsui Financial Group Inc. closed 11.49 per cent lower at 385,000, and Mizuho Financial Group Inc. lost 14.81 per cent to 230,000 yen. -- AP