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Companies linked to the nuclear energy industry were also badly hurt.
Earlier on Tuesday, the Japanese market plunged again on fears of a meltdown at the Fukushima Daiichi nuclear plant.
There have been reports of a fire and another explosion at the plant.
Japan was hit by a massive earthquake and tsunami on Friday, causing billions of dollars of damage.
The Nikkei 225 shed 10.6% on Tuesday to 8,605, and had been down 14% at one point, registering its biggest two-day drop in 40 years. The broader Topix index fell 9.5%.
Chips supplies down Many companies have shut down production in Japan in order to conserve energy usage and minimise the impact of electricity shortages on households.
The country is already subject to planned blackouts after electricity supply and distribution were shattered by the magnitude 9 earthquake and tsunami.
"While there are few reports of actual damage at electronic facilities, impacts on the transportation and power infrastructure will result in disruptions of supply, resulting in short supply and rising prices," said research firm IHS iSuppli.
Prices for NAND flash chips - critical for smartphones and tablet computers - rose another 3% on Tuesday, following a 20% jump on Monday.
Explosions at the Fukushima nuclear reactor have raised concerns about disruptions in energy supply Fears of a knock-on impact on Western tech companies was evident, with Germany's Infineon down 7.5% at one point on Tuesday morning.
Another loser may be Boeing's perennially problem-hit Dreamliner. About a third of its production parts come from Japan.
Car parts Meanwhile, European auto stocks also dived on Tuesday, with Volkswagen the poorest performer, down 7.4% before a bounce in late morning trading.
On Monday, non-Japanese carmakers had outperformed the broader market, as they were expected to gain market share at the expense of their crisis-struck Japanese peers.
However, it is becoming evident that many international manufacturers depend on Japan for parts supplies, particularly electronic components and batteries for hybrid vehicles.
BMW and Volvo have both said they are still investigating the impact on production.
"We have international supplier networks, not just BMW, but other automakers too," said BMW chief executive Norbert Reithofer.
His head of purchasing said there were currently no effects on production, but the company would only be able to say in seven to 10 days what the likely longer-term effect might be.
Japanese carmakers have shut down production, but so have many suppliers of critical car parts Japanese car companies have shut down their domestic production facilities for at least a week.
Nissan and Honda both told the BBC they were using the time to assess the impact on the parts producers on whom they depend.
"Frankly it's extraordinarily complex," said Andy Palmer, Senior VP at Nissan.
"We're assessing supplier by supplier what the supply chain is looking like," he added, noting that some suppliers are located within an exclusion zone around the Fukushima nuclear plant.
Economic impact Concerns about the impact of the devastation on Japan's economy have been rising as the extent of devastation becomes clear.
The blasts at the nuclear plant and the threat of a radiation leak have further escalated those fears.
A nuclear disaster would make the task of rebuilding and reconstruction far more difficult and costly.
According to some estimates, the devastation caused by Friday's deadly earthquake and subsequent tsunami is expected to cost Japan $180bn (£111bn) in reconstruction and recovery.
That is 50% higher than the cost of rebuilding after the 1995 earthquake in Kobe.
There are concerns that the increasing cost of rebuilding will add further to Japan's debt mountain. Japan has the highest public-debt levels in the industrialised world.
Last month, the country's debt rating was downgraded on concerns that it was not doing enough to address the issue.
At the same time, analysts have forecast that the quake could knock as much as one percentage point off Japan's gross domestic product.
Currency issues
The Japanese currency strengthened to 81.40 yen against the US dollar before settling back to near 81.65.
A stronger yen is detrimental for the export-dependent economy as it not only makes its products more expensive, but also eats into the profits of Japanese companies when they repatriate their foreign earnings back home.
Japan's finance minister said on Tuesday that he would monitor currency market moves.
However, Yoshihiko Noda would not confirm or deny that there had been intervention in the currency market.
"We will continue to monitor the market," Mr Noda said.
Analysts said there were signs that the central bank may have intervened in the market after the US dollar strengthened suddenly on Tuesday.
http://www.bbc.co.uk/news/business-12745796
Dax Index
Last Updated at 15 Mar 2011, 12:42 GMT *Chart shows local time| value | change | % |
|---|---|---|
| 6533.96 | - -332.67 | - -4.84 |
Top loser | ||
Infineon Technologies AG | ||
| 6.73 | - -0.52 | - -7.15 |
European stock markets have fallen sharply amid fears that Japan's earthquake may undermine supply chains for global manufacturers.
The German Dax index dropped 5%, led by tech companies and carmakers which rely on Japanese suppliers for crucial parts, before recovering somewhat.Companies linked to the nuclear energy industry were also badly hurt.
Earlier on Tuesday, the Japanese market plunged again on fears of a meltdown at the Fukushima Daiichi nuclear plant.
There have been reports of a fire and another explosion at the plant.
Japan was hit by a massive earthquake and tsunami on Friday, causing billions of dollars of damage.
The Nikkei 225 shed 10.6% on Tuesday to 8,605, and had been down 14% at one point, registering its biggest two-day drop in 40 years. The broader Topix index fell 9.5%.
Chips supplies down Many companies have shut down production in Japan in order to conserve energy usage and minimise the impact of electricity shortages on households.
The country is already subject to planned blackouts after electricity supply and distribution were shattered by the magnitude 9 earthquake and tsunami.
Continue reading the main story 
“Start Quote
End QuoteThere cannot be total insulation elsewhere from the sheer size of the market movements in Japan”
Those shutdowns now threaten to disrupt manufacturing elsewhere in the world.
Japan is a dominant player in the microchip market, supplying about 20% of global semiconductors and 40% of flash memory chips."While there are few reports of actual damage at electronic facilities, impacts on the transportation and power infrastructure will result in disruptions of supply, resulting in short supply and rising prices," said research firm IHS iSuppli.
Prices for NAND flash chips - critical for smartphones and tablet computers - rose another 3% on Tuesday, following a 20% jump on Monday.
Explosions at the Fukushima nuclear reactor have raised concerns about disruptions in energy supply Another loser may be Boeing's perennially problem-hit Dreamliner. About a third of its production parts come from Japan.
Car parts Meanwhile, European auto stocks also dived on Tuesday, with Volkswagen the poorest performer, down 7.4% before a bounce in late morning trading.
On Monday, non-Japanese carmakers had outperformed the broader market, as they were expected to gain market share at the expense of their crisis-struck Japanese peers.
However, it is becoming evident that many international manufacturers depend on Japan for parts supplies, particularly electronic components and batteries for hybrid vehicles.
BMW and Volvo have both said they are still investigating the impact on production.
"We have international supplier networks, not just BMW, but other automakers too," said BMW chief executive Norbert Reithofer.
His head of purchasing said there were currently no effects on production, but the company would only be able to say in seven to 10 days what the likely longer-term effect might be.
Japanese carmakers have shut down production, but so have many suppliers of critical car parts Nissan and Honda both told the BBC they were using the time to assess the impact on the parts producers on whom they depend.
"Frankly it's extraordinarily complex," said Andy Palmer, Senior VP at Nissan.
"We're assessing supplier by supplier what the supply chain is looking like," he added, noting that some suppliers are located within an exclusion zone around the Fukushima nuclear plant.
Economic impact Concerns about the impact of the devastation on Japan's economy have been rising as the extent of devastation becomes clear.
The blasts at the nuclear plant and the threat of a radiation leak have further escalated those fears.
A nuclear disaster would make the task of rebuilding and reconstruction far more difficult and costly.
According to some estimates, the devastation caused by Friday's deadly earthquake and subsequent tsunami is expected to cost Japan $180bn (£111bn) in reconstruction and recovery.
Click to play
Power industry expert Benjamin Sovacool tells Asia Business Report that nuclear power is too expensive
There are concerns that the increasing cost of rebuilding will add further to Japan's debt mountain. Japan has the highest public-debt levels in the industrialised world.
Last month, the country's debt rating was downgraded on concerns that it was not doing enough to address the issue.
At the same time, analysts have forecast that the quake could knock as much as one percentage point off Japan's gross domestic product.
Currency issues
Continue reading the main story 
“Start Quote
End Quote Yoshihiko Noda Japan's Finance MinisterWe will continue to monitor the market”
The devastation is also affecting the price of the Japanese currency.
The yen is gaining in strength as Japanese firms, including insurance companies, buy back their home currency in order to fund the country's reconstruction.The Japanese currency strengthened to 81.40 yen against the US dollar before settling back to near 81.65.
A stronger yen is detrimental for the export-dependent economy as it not only makes its products more expensive, but also eats into the profits of Japanese companies when they repatriate their foreign earnings back home.
Japan's finance minister said on Tuesday that he would monitor currency market moves.
However, Yoshihiko Noda would not confirm or deny that there had been intervention in the currency market.
"We will continue to monitor the market," Mr Noda said.
Analysts said there were signs that the central bank may have intervened in the market after the US dollar strengthened suddenly on Tuesday.
http://www.bbc.co.uk/news/business-12745796
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