The Nikkei stock average fell below the 16,000 line Tuesday as worried investors sold off Internet stocks amid the dust kicked up by prosecutors’ search of Livedoor Co. over suspected securities law violations.

The Nikkei lost 462.08 points in its biggest single-day loss since May 2004 to close at 15,805.95, down 2.8 percent from the previous day.

Despite the news, the downside is likely to be limited by strong buying by foreign investors, market participants said.

Experts said the fallout from the raid may have far-reaching effects that will prompt investors and regulators alike to review the way the market operates.

“We’re in for a long debate now on how far investors and managers can go in the name of profit, whether the legal checks are enough, and how to build a system of checks to ensure confidence in Japan’s market,” said Hisahiko Saito, a professor of commerce at Keio University.

Central to the speculation is the tactic of using stock splits, which often boost stock prices. But Livedoor is not the only firm suspected of using tricky but legal price-boosting measures, he said.

“It’s a tough call, because you don’t want to discourage new entrants into the economy,” Saito said.

Worried about possible rule-breaking by tech-oriented newcomers, individual investors rushed to dump Livedoor, partner Fuji Television Network Inc. and other Internet stocks, including Yahoo Japan and Softbank.

Some market watchers, however, welcomed the raid.

“It’s a welcome break to the recent excessive rally, which would not have lasted anyway,” said Mitsuru Yoshikawa, head of capital market research at Daiwa Institute of Research. He said the impact on the overall stock market was limited.

A manager of a U.S. pension fund, who asked not to be named, said overseas appetite for Japanese stocks remains strong, given the economy’s fundamentals.

If Livedoor is found to have violated securities laws, other changes may be in store.

For example, new entrants and institutional investors may think twice before using tactics that are technically legal but considered “overly aggressive” by the Japanese business establishment.

Some established businesses and experts have questioned some of Livedoor President Takafumi Horie’s growth strategies, including the use of large stock splits to acquire businesses.

Stock splits are common and usually carried out to lower the per-share price so small investors can buy shares more easily.

Livedoor apparently used price-splitting often as a tactic to boost its stock price. Although it is not clear yet whether investigators are specifically targeting this practice, the media have been led to start questioning the legitimacy of the tactic.

Splits are often accompanied by a sharp rise in the stock price. Horie raised eyebrows using this tactic by taking advantage of the jump in Livedoor’s stock price to acquire businesses. The acquisitions in turn helped keep the price of his shares high.

“Although it is not illegal, it is very gray,” Daiwa’s Yoshikawa said, noting the practice has been criticized by experts. “It has been used by startups and IT-related firms. It is not a desirable practice.”

In March, the Tokyo Stock Exchange asked companies to refrain from carrying out stock splits at ratios greater than 5-to-1.

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