5:00AM New York, 7:00PM Tokyo – Stocks in Japan declined fell 4% tracking losses in the U.S. Japan''s industrial production falls 3.5% in August.

Stocks in Japan dropped markedly for the second trading session after the factory output plummeted in August and U.S. lawmakers reject bailout plan of $700 billion. The stunning defeat of the proposal shocked the market as Dow Jones lost 7% and suffered largest one day point loss.

Market Sentiment

In Tokyo trading Nikkei 225 declined 4.12% or 483.75 to 11,259.86, and the broader Topix Index slipped 3.6% or 40.46 to 1,087.41.

In the first section of the Tokyo Stock Exchange 22 billion shares worth 2.3 trillion yen were traded and in the second section 457 million shares valued at 5.6 billion yen changed hands.

Of the Nikkei 225 index stocks 10 rose, and 215 declined. Fuji Electric House led advancers in the index shares with a rise of 3.73% followed by Shinsei Bank gaining 3.65%.

Industrial Production Drops 3.5%

The Ministry of Economy, Trade and Industry reported on its Web site today that Japan''s industrial production in August fell 3.5% from the previous month and slid 6.9% from a year earlier.

Industries that led to the fall were transport equipment, general machinery and electrical machinery correspondingly, while commodities that contributed to the slump included large passenger cars; drive, transmission and control parts; and semiconductor products respectively.

METI forecasts that production is expected to soar 1.6% in September but decline 0.1% in October. Industries that contributed to the increase in September were transport equipment, general machinery, and others in that order.

However, industries that led to the fall in October are transport equipment, electronic parts and devices, pulp and paper correspondingly.

According to the report, shipments declined for the first time in two months by 3.8% from the previous month in August and fell 6.9% from the previous year dragged down by transport equipment, general machinery and chemicals in that order.

In addition, inventory shed 0.2% from the previous month, but rose 1.8% from a year ago.

Separately, the government reported that the country''s unemployment rate jumped to 4.2% in August.

Mitsubishi UFJ Risky Investment in Morgan Stanley

Mitsubishi UFJ agreed to invest $3 billion in Morgan Stanley at a price of $25.25 and buy $6 billion convertible preferred stock that pays 10% dividend. The bank did not say if the investment has a provision to collect more shares if it drops after the investment or the company raises more money at a lower price at a later date.

Investing in the U.S. brokerage firms have been hazardous for Asian and Middle East investors. The Asian investors in Merrill Lynch, Citigroup and Bear Stearns have lost as much as 80% in the last one year.

Mitsubishi investment in Morgan Stanley is down 20% from the its purchase as financial stocks continue to decline as the U.S. lawmakers appear skeptical of the Treasury bailout plan.

U.S. House of Representatives Reject Draft Bailout Plan

The U.S. House of Representatives yesterday shot down the proposed $700 billion rescue plan by a vote of 228 to 205 on fears that the """"hastily"""" prepared Emergency Economic Stabilization Act doesn''t provide sufficient oversight and may saddle the nation with a huge debt.