TOKYO - Japan's key stock index plunged a stunning 9.6 percent Friday to close out its worst week in history as frantic investors worried about a global recession dumped stocks after huge losses on Wall Street.

The benchmark Nikkei 225 index tumbled 881.06 points to 8,276.43, its lowest since May 2003. It was its biggest one-day percentage loss since the stock market crash of October 1987.

"Selling is unstoppable in New York and Tokyo," said Yutaka Miura, senior strategist at Shinko Securities Co. Ltd. "Investors were gripped by fear."

The index dropped by more than 11 percent at one point but recovered modestly in the afternoon.

Investors reeled from a brutal week. On Wednesday, the index had plunged 9.4 percent. Since last Friday, the Nikkei has lost nearly a quarter of its value.

The massive sell-off across Asia follows a 7.3 percent overnight drop in the Dow Jones industrial average, which closed below the 9,000-level for the first time in five years.

Accelerating the pessimism were insolvencies in the insurance and real estate sectors that weakened confidence the world's No. 2 economy would weather the global financial crisis relatively unscathed.

Mid-sized insurer Yamato Life Insurance Co. went bankrupt Friday, becoming the first major Japanese financial company to collapse on the fallout from the U.S. credit crisis. On Thursday, New City Investment Corp.'s bankruptcy filing made it Japan's first real-estate investment trust to fail.

The sharp declines prompted the Tokyo bourse and the Osaka Securities Exchange to briefly suspended some futures and options trading during the morning.

Friday's developments left individual investors in Tokyo shellshocked.

Kenji Akasaka, 69, president of a local printing company, said he had never seen it this bad in the 40 years he has traded stocks. He said he invests mainly in blue-chips including Toyota Motor Corp. and Nintendo Co. - both of which have lost about half their value over the last year.

"I pray before I go to bed that the Dow will recover," said Akasaka, 69, as he scanned a monitor displaying the latest market levels. "I get sleepless, thinking about losses."

Japanese Economy Minister Kaoru Yosano sought to reassure the country even as markets tumbled.

"We need to make sure that we don't get pulled too much by global tides," Yosano said. "I hope investors Japan's makes decisions calmly based on Japan's economic fundamentals."

Overnight, the Dow's 2,271-point tumble over the last seven sessions was its steepest seven-day point drop ever. Its seven-day percentage decline of 20.9 percent is the largest since the seven-day plunge ending Oct. 26, 1987, when the Dow lost 23.8 percent. That sell-off included Black Monday, the Oct. 19, 1987, market crash that saw the Dow fall nearly 23 percent in a single day.

Asia's falls come as finance ministers and central bankers from the Group of Seven industrialized nations prepared to meet later Friday in Washington.

"Investors are not so sure that the G7 will announce effective measures to contain the global financial crisis," Miura of Shinko Securities said.

All sectors posted huge losses, with insurance, real estate, steel and pharmaceutical issues taking especially big hits.

Japan's broader Topix index slumped 6.91 percent.

In currencies, the dollar was trading at 98.96 yen Friday afternoon in Asia from 98.92 yen late Thursday. The euro stood at US$1.3516 from US$1.3560.