TOKYO, Japan (CNN) -- Investors rattled by a raid on an Internet company and weaker than expected U.S. tech earnings dumped Japanese shares Wednesday, sending the Nikkei index plunging and prompting the Tokyo Stock Exchange to suspend trading on the world's second-largest market.

The TSE halted all trade 20 minutes early at 2:40 p.m. (0540 GMT) because the number of trades were approaching the 4-million capacity limit of the exchange.

Earlier in the day, massive selling -- which saw more than 2.3 million trades in the morning session alone -- led to the exchange issuing a warning that it might have to suspend trading.

The market fell further into the red until TSE President Taizo Nishimuro said the exchange would make a decision if trading volume hit 4 million. He also said the TSE might shorten trading hours on Thursday.

His comments appeared to stabilize the market, which recovered some of its lost ground, leaving the Nikkei down 2.94 percent at the close -- a loss of 464.77 points to 15,341.18. At one point Wednesday, the Nikkei -- the key index of 225 leading stocks -- was down more than 4 percent.

The broader TOPIX finished down 3.49 percent to 1,574.67 after being down more than 5 percent at one stage.

Other markets in the region were also well in the red, with Taiwan losing more than 3 percent and South Korea dropping 2.6 percent.

The massive selling on Wednesday came as investors became nervous over an investigation into Japanese Internet company Livedoor, allied to weaker than expected results from Intel and Yahoo in the United States.

Wednesday's extraordinary developments highlighted the weakness of the TSE's computerized handling systems, which have come under increasing scrutiny after a series of mistakes in recent months.

"It is an embarrassment for this to happen in the world's second-largest economy and that's the emotional aspect of the debate," Hideo Ueki, chief investment officer at UBS Global Asset Management Japan, told Reuters. "I'm pretty sure the NYSE (the world's biggest exchange) has only had to shut down for snow or a black-out."

The Nikkei's plunge meant share losses extended into a third day, as trouble at Livedoor drove many investors to sell.

Earlier, brokerage shares took a hit, with industry leader Nomura Holdings dropping over 5 percent after one online broker on Tuesday said it would not accept shares in Livedoor for margin trading (in which brokerage firm lend investors money to buy more stocks, using the securities they already own as collateral).

Traders said the surprise move raised concern among investors that other brokers may follow suit, possibly curbing margin trading, which has been one of the engines in the market's rally to five-year highs and a source of revenue for brokerage firms.

Softbank, a favorite of individual investors, extended the previous day's fall and sank over 12 percent, while technology stocks were dragged down by weaker earnings than expected from Intel and Yahoo.

On Tuesday, the Nikkei fell 2.84 percent, its biggest one-day fall in nine months, after a raid by prosecutors on Livedoor raised concern that stock prices in companies pursuing growth through acquisitions, like the portal operator does, may be over-inflated.

Some analysts said the Livedoor probe had triggered a long-overdue correction in the market.

"While this was an abrupt drop, even if the Nikkei had broken under 15,000 it would have been a fall of around 10 percent. I think that is a completely natural correction," Hajime Yagi, general manager of Japanese equity investment at Meiji Dresdner Asset Management, told Reuters.

Added Hitoshi Yamamoto, president of Commerz International Capital Management: "I had expected a market correction of an almost 10 percent fall sometime between January and March.... The pace of the rally was too fast."

Some investors have been in a hurry to raise cash by selling shares since Monex Securities, a unit of Monex Beans Holdings, decided not to accept shares in Livedoor and four related companies -- Livedoor Marketing, Turbolinux, Livedoor Auto and Dynacity -- as collateral for margin trading from Wednesday.

Trading in Livedoor shares was suspended on the Tokyo bourse's Mothers market for start-ups during the morning after media reports that the Internet firm had tampered with its earnings statements. Trading in the shares resumed in the afternoon, but they were untraded with a glut of sell orders.

Yahoo Japan, Japan's biggest Internet portal, fell 9.76 percent to 148,000 yen. Its parent, Softbank, plunged 13 percent to 3,340 yen.

Yahoo, the world's largest media company, on Tuesday posted disappointing earnings that reflected higher operating costs, sending its shares tumbling 13 percent.

Tokyo Electron, the world's second-biggest chip equipment maker, lost 4.15 percent to 7,860 yen and Ibiden, which supplies IC packages to Intel, dropped 7.8 percent to 5,660 yen.

Intel on Tuesday posted quarterly profit and revenue below expectations as the world's top chip maker suffered from weak demand for processors used in desktop computers, sending its stock falling almost 9 percent.

But one analyst said now was a chance to find bargains among chip stocks.

Elsewhere in the region, South Korea's Kospi finished down 2.64 percent to 1352.84 and Australia's S&P/ASX200 was off 1.63 percent from Tuesday's record close to finish at 4786.9.

In Seoul, market heavyweight Samsung Electronics dropped 3 percent to 676,000 won, Kookmin Bank fell 4.4 percent and Hynix Semiconductor plunged more than 8 percent to 33,200 won.

In Australia, resources giant Rio Tinto gave up 2.35 percent to A$70.25, and rival Rio Tinto fell 1 percent to A$23.73. Big banks were also weaker.

Taiwan also ended well into the red, with the Taiex down 31.6 percent to 6498.92. There are falls, too, in Hong Kong, New Zealand and Singapore.