TOKYO -- Japan may technically be back in recession, but Monday's continuing cat fight between two leading Japanese tech firms is proving to be much more interesting news on which to trade.

Gross domestic product data which confirmed a second straight quarter of economic decline came in slightly worse than expected, but was pushed aside in investors' minds as they continued to beat down large tech and telecom shares, two sectors already scorched over the past week. The selling, which began with U.S. hedge funds, crossed over to Japanese dealers last week and has now spread to retail investors.

The

Nikkei 225

stock index fell 560.47, or 2.8%, to 19,189.93, while the

Topix

index, which includes shares listed on the

Tokyo Stock Exchange's

first section, tumbled 75.15, or 4.6%, to 1558.15. The

Jasdaq

small-cap index lost 207.27, or 8.6%, to 106.04, while the Nikkei

over-the-counter

shares shed 11.00, or 9.4%, to 2215.35.

The tech bashing is centering on

Softbank

and

Hikari Tsushin

, two companies that only a month ago were heralded as the future of the Internet revolution in Japan. Now the two firms are embroiled in bad publicity, with top officials each blaming their counterparts at the other firm for starting the continuing spat.

Hikari Tsushin, down 5500 yen, or 5.9%, to 88,500, couldn't shake off talk that started last Thursday via magazine

Bungei Shunju

. The magazine said the president of the firm pushes its salesmen to use strong-arm tactics. Traders said that if true, this would hurt the credibility of so-called New Japan companies. Rumors also swirled that the president had been arrested for insider trading. The firm has denied both the magazine's contention and the market rumors.

Investors are also growing wary of Softbank, down 5000, or 5.0%, to 94,200. Some say the firm's move to take over now-nationalized

Nippon Credit Bank

will be extra baggage the company doesn't need. In addition, the chief financial officer of Softbank called for Hikari Tsushin's president, Yasumitsu Shigeta, to step down from Softbank's board, accusing Shigeta of stealing Softbank's business model.

Aside from the recriminations, there are also fundamental reasons behind the battering being handed out to key tech stocks. First, investors are locking in profits before the fiscal year ends on March 31. But more than that, traders note that the price of Softbank, at $888.68 for a single share, had simply run up too far, too fast -- it was up 37% in the year to February 21, before beginning its sustained slide.

Sony

(SNE) - Get Report

fell 2000, or 7.6%, to 24,300. The firm admitted that 340 of its PlayStation2 game consoles that went on sale March 4 in Japan had faulty DVD drives. Sony Computer Entertainment is asking customers to send back the consoles in return for a new model.

Meanwhile, the greenback edged lower against the yen to around 105.84, after hitting an intraday high of 106.67 following the release of fourth quarter GDP figures. GDP for the October-December period fell 1.4% from the previous quarter, slightly below market expectations of a 0.9% decline. But the market concentrated on an upswing in corporate investment, which rose 4.6% from the previous quarter.

Both government and private sector economists repeated forecasts that Japan's GDP in fiscal 2000, which begins on April 1, will be stronger than in the current financial year.

Hong Kong's

Hang Seng

index tumbled 735.18, or 4.1%, to 17,096.68. Regional market woes, including those in Tokyo and Taiwan, prompted investors to pile up stop-loss orders late in the afternoon. Index heavyweight

China Telecom

(CHL) - Get Report

, slipped HK$6.50, or 8.9%, to 66.50, as the market talked up the possibility that a third regional telecom operator could be set up by China soon. The firm's rival

China Unicom

is also reportedly speeding up efforts to list on the stock market, traders said.

With numerous business ties to Japan's Hikari Tsushin,

Pacific Century Cyberworks

shed 1.75, or 7.9%, to 20.40. At the same time that Softbank was bashing Hikari Tsushin, a Softbank official also lashed out at the motivations of PCCW Chairman Richard Li.

Cable & Wireless HKT

(HKT)

lost 1.50, or 6.3%, to 22.40.

Taiwan's

TWSE

index lost 617.65, or 6.6% to 8811.95, as the popularity of

Chen Shui-bian

, the

Democratic Progressive Party

candidate in next Saturday's presidential elections, appeared to increase. The DPP was once in favor of declaring independence from China. While it has modified this stance, Chen is still perceived to be the most hostile candidate to closer relations with mainland China, which regards Taiwan as a renegade province. The government in Beijing has threatened military action if Taiwan moves towards full independence from the mainland, or even if it drags its feet in talks on reunification.