Sydney - Japanese shares sank to six-month lows on Friday as an escalating selloff on Wall Street spread to Asia and slugged markets that had been fairly resilient up to now.
What was increasingly looking like a major portfolio shift from momentum plays in US technology and biotechnology stocks was having a knock-on effect across all regions and sectors, pressuring even defensive shares.
Momentum investing involves buying stocks that are already trending higher, often taking their price/earnings ratios into the stratosphere. When the momentum turns it can do so viciously as investors rush to the exits at the same time.
Japan, in particular, was vulnerable both to the dive in tech stocks and to the strength of the yen, which crimps exports and corporate profits. The Nikkei gapped lower right from the off and never looked back, shedding 2.6 percent to 13,936.
A key chart bulwark in the 14,000 to 14,200 zone snapped like a twig, opening the door for a potential retreat to support at 13,750. Tech bellwether Softbank led the way with a drop of 4.8 percent to its lowest in over two months.
Still, dealers suspected the authorities would be working behind the scenes to get public pension funds to buy and stop the rot.
The slide followed a brutal day on Wall Street, where the Nasdaq suffered its worst single-day drop since late 2011. The tech-heavy index sank 3.1 percent, while the Nasdaq biotechnology index plunged 5.6 percent.
The selling rippled through the broader market pulling the Dow down 1.62 percent and the S&P 500 2 percent.
Investors were in part taking profits as the US corporate profit season started amid expectations that results would be not be stellar enough to support the high valuations of some stocks.
Markets across Asia were spooked by the scale of the losses, with Korea down 0.9 percent in morning trade and Australia 0.7 percent. MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.7 percent.
Even the MSCI emerging markets index eased back a little, a day after reaching its highest for the year so far. The emerging sector has been on a tear in the last couple of weeks as funds cut back exposure to developed markets.
With stocks out of favour, government bonds were set to benefit and yields on the benchmark 10-year US Treasury note fell to their lowest since February 27 at 2.62 percent. They were last at 2.647 percent in Asia.
Even Greece managed a triumphant return to the bond market just two years after its default placed it at the centre of the euro zone debt crisis.
Greece drew solid demand at its five-year bond sale, which aimed to raise three billion euros and offered a yield of 4.95 percent, beating Athens' 5 percent target. It had been expected to draw in US investors including hedge funds.
The afterglow from the Greek deal combined with the latest drop in US yields helped the euro higher on the dollar. On Friday, the single currency was up at $1.3892 having rallied two full cents over the past four sessions.
The dollar also lost ground to the yen, falling to 101.45 from a high of 102.14 on Thursday. The dollar is now nearing major chart support around 101.20 that has held for much of the past three months and a breach would be bearish.
The dollar index also hit a three-week low of 79.330, well below a seven-week high of 80.599 set only last week. It last stood at 79.401.
The fall in the dollar helped gold hit a 2-1/2-week high at $1,324.40 an ounce, though it had eased back to $1,317.14 on Friday.
Oil prices remained soft in the wake of disappointing trade data from China out on Thursday. Brent crude eased 17 cents to $107.29 a barrel, while US crude was quoted down 18 cents at $103.22 a barrel. - Reuters