TOKYO -- With the market fearful that more corporate bankruptcies will emerge, investors shed key bank shares as they worried that Japan's major financial institutions would bear the brunt of the costs.

Concerns about more failures have been around for some time. However, the

Bank of Japan

stated Monday that it would not raise interest rates partly due to concerns over the

failure of department store operator

Sogo

, which may have triggered the selling today, traders said.

The

Nikkei 225

index closed down 341.76, or 2.0%, to 16,945.07, while the

Topix

index, which includes all shares listed on the

Tokyo Stock Exchange's

first section, finished lower by 34.09, or 2.2%, to 1541.95. The

Jasdaq

small-cap index ended having lost 1.80, or 2.1%, to 83.32, while the Nikkei

over-the-counter

index fell 33.56, or 1.9%, to 1726.37 before the close.

In a statement, the BOJ said it decided not to raise key interest rates Monday because household spending had not rebounded strongly and because of concerns about the collapse of Sogo, Japan's second largest bankruptcy, last week. Board members said they wanted to see how the market would react to Sogo's restructuring.

Some traders had expected a relief rally Tuesday, but after the BOJ mentioned Sogo as one factor for keeping its zero-interest rate policy, some investors feared that Sogo and other corporate failures would hurt market sentiment in the long-term. Investors calculated that because the government decided not to save Sogo with public funds, banks would shoulder many of the dud loans if other firms went under. Trades on this logic sent key bank shares sharply lower.

Dai-Ichi Kangyo Bank

lost 49 yen, or 6.7%, to 680 ($6.31) and

Sumitomo Bank

shed 37, or 3.1%, to 1148, while the

Industrial Bank of Japan

fell 53, or 7.2%, to 680.

Bank concerns weren't the only factor sending indices lower. Investors who bought large-cap technology stocks on margin at the top of the year also shed shares Tuesday to book profits.

Sony

(SNE) - Get Report

lost 260, or 2.3%, to 10,910, while

Fujitsu

tumbled 60, or 1.8%, to 3360.

Nippon Telegraph & Telephone

(NTT)

fell 30,000, or 2.1%, to 1.43 million despite news that the U.S. and Japan may be close to reaching an agreement to cut the telecom giant's interconnection fees.

The greenback fell slightly and recently bought 107.83 yen.

Hong Kong's

Hang Seng

index fell 393.95, or 2.2%, to 17,440.83, dragged down by a slump in Tokyo and local telecom shares. Index heavyweight

China Mobile

(SHL)

lost HK$3.00, or 4.0%, to 72.75 ($9.33), while

Pacific Century Cyberworks

lost 0.55, or 3.4%, to 15.55. PCCW denied reports that it was seeking to take over Japan's battered Internet firm

Hikari Tsushin

. Shares of Hikari nonetheless rose 390, or 9.1%, to 4670 amid expectations that the firm will soon announce an extensive restructuring plan.

Elsewhere in Asia, Korea's

Kospi

index lost 15.62, or 1.9%, to 812.33, while Taiwan's

TWSE

index shed 216.74, or 2.5%, to 8368.78.