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Japan Shares Drop 5.4%

Stocks around the globe sell off despite a late-day U.S. rally.
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Japan led another sharp selloff in Asia Friday morning, while shares opened modestly lower in Europe.

Japan's Nikkei fell 5.4% in its biggest selloff since the 9/11 terror attacks. Other major markets in Asia declined notably if less dramatically, with Hong Kong's Hang Seng off 1.4% and China's Shanghai Composite down 2.3%.

Selling in Japan came as the yen continued to strengthen against the dollar. The dollar was worth 112 yen, a 10% decline from its levels as recently as June. The move comes as hedge funds and other investors unwind trades based on borrowing in cheap yen and investing in higher-yielding dollars. The stronger yen hurts exporters like

Toyota

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, which dropped 7% Friday.

In Europe, the U.K. FTSE, French Cac and German Dax were all down fractionally.

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The drops came a day after U.S. stocks posted sharp intraday losses before recovering late to finish only a bit lower. The selling was led by the latest round of concerns about the mortgage market.

Countrywide

(CFC)

ended 11% lower after being down as much as 26% as investors worried about the company's solvency in light of a plan to tap an $11.5 billion bank credit line. Other financial names were also taken to the cleaners, including

E*Trade

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, which fell 22% at one point before issuing a statement denying any funding or balance sheet problems. The stock ended the day 4% lower.