Nikkei plunges more than 300 points in early trading before erasing some losses

Japan's benchmark stock index plunged over 300 points in early trading Friday, following large losses in New York overnight because of concerns over a possible end to interest rate cuts and a slowing U.S. economy.

Shortly after the market opened, the Nikkei 225 index fell 346.70 points, or 2.06 percent. The index later regained some of its early losses, ending the morning trading at 16,581.27 points, down 289.13 points, or 1.71 percent.

Leading the spiral downward were banking shares. Japanese megabank Mitsubishi UFJ Financial Group fell 4.7 percent to 1,067 yen following a recent revision of its profit outlook on weak domestic lending.

The plunge in Tokyo came after shares in New York nose-dived Thursday, with the Dow Jones industrial average falling more than 360 points as Wall Street reacted nervously to surging oil prices and a U.S. Federal Reserve warning on inflation.

The warning from the Fed, which cut interest rates earlier this week, triggered concern that the U.S. central bank might hold off further rate cuts or even consider raising them if inflation accelerates.

Investors were also spooked by concerns of a slowing U.S. economy, a key export market for Japanese companies.

A report from the Commerce Department showed U.S. consumers had scaled back their spending in September as worries mounted about a worsening housing market and further credit market turmoil. A trade group also reported that manufacturing in the U.S. grew in October at the weakest pace since March.

The broader Topix index of all the Tokyo Stock Exchange First Section issues fell 25.67 points, or 1.57 percent, to 1,610.11.

In currency dealings, the dollar slipped to 114.76 yen late morning Friday from 114.92 yen late Thursday in New York. The euro fell to US$1.4426 from US$1.4462.