TOKYO -- Shares of Asian chip makers took a pounding after Salomon Smith Barney issued a pessimistic report overnight on the future of the industry. But after the dust settled, what was left behind was major confusion over the potential growth of the region's markets, especially in Japan.

Only a day before U.S. shares tumbled, partly on missed earnings estimates, news had broken that

Mitsubishi Electric

(MIELY)

, one of the world's top chip makers, was joining other manufacturers in planning to increase capital investment this year to record levels.

The

Nikkei 225

index shed 153.58 points to 17,282.37, while the

Topix

index, which includes all shares listed on the

Tokyo Stock Exchange's

first section, lost 10.55 to 1590.63. The

Jasdaq

small-cap index fell 3.24, or 3.6%, to 86.14, while the Nikkei

over-the-counter

index lost 34.76, or 1.9%, to 1777.17.

All major Asian chip makers crumbled following Salomon's pessimistic report.

NEC

(NIPNY)

shed 250 yen, or 7.3%, to 3200,

Toshiba

lost 81, or 6.5%, to 1167, Mitsubishi Electric tumbled 70, or 6.0%, to 1107,

Tokyo Electron

lost 230, or 1.6%, to 14,480, while

Rohm

shed 700, or 2.2%, to 30,800. The timing of Salomon's report was considered bad timing for these shares, since many traders thought the sector would rally following a report in the

Nihon Keizai Shimbun

yesterday that said profits for Japanese chipmakers would likely soar in fiscal 2000.

Tumbling right along were Internet shares, with

Softbank

falling 1750, or 14.1%, to 10,700.

Yahoo! Japan

shed 4.45 million, or 11.7%, to 33.55 million, and

Trans Cosmos

lost 1700, or 10.1%, to 13,900.

Comments from

U.S. Treasury Secretary Larry Summers

helped the greenback edge higher against the yen to around 106.96. Many dealers thought the

Bank of Japan

may hold off raising interest rates on July 17 after Summers again repeated his view that Japan needed to focus on encouraging domestic demand-led economic growth. Some dealers speculated that this comment was one way the U.S. was pressuring Japan to hold off hiking rates.

Hong Kong bucked the regional trend and the

Hang Seng

index managed to inch up 15.32 to 16,489.59. Telecom shares continue to be hot, largely due to news that

Hutchison Whampoa

(HUWHY)

, up HK$2.50, or 2.3%, to 109.50 ($14.04) may sell a stake of its U.K. mobile unit to Dutch

KPN Telecom

and Japan's

NTT DoCoMo

.

China Mobile

(CHL) - Get Report

, formerly known as China Telecom, gained 0.50 to 69.50, while

China Unicom

(CHU) - Get Report

, climbed 0.05 to 18.35.

Property shares also rose, with

Sun Hung Kai Properties

(SUHJY)

up 1.75, or 2.0%, to 59.75.

Korea's

Kospi

index rose 7.23 to 837.63 but Taiwan got hit on Salomon's report. The

TWSE

index lost 132.35, or 1.6%, to 8289.39 as

Taiwan Semiconductor Manufacturing

(TSM) - Get Report

fell TW$4.00, or 2.7%, to 145.00 ($4.72).