Sentiment worsened as other Asian stocks also dropped on news that Trump will recognise Jerusalem as Israel´s capital

TOKYO: Tokyo´s benchmark stock index closed nearly two percent lower on Wednesday as investors stepped up selling on news that US President Donald Trump will recognise Jerusalem as Israel´s capital.

The key Nikkei 225 index fell 1.97 percent, or 445.34 points, to 22,177.04, suffering the biggest point loss this year. The broader Topix index was down 1.43 percent, or 25.55 points, at 1,765.42.

Trump is set to recognise Jerusalem as Israel´s capital later Wednesday, upending decades of careful US policy and ignoring dire warnings of a historic misstep that could trigger a surge of violence in the Middle East.

"The Jerusalem issue came just when ´Russia-gate´ reminded investors of risks over the Trump administration´s management," said Makoto Sengoku, market analyst at Tokai Tokyo Research Centre.

Investors have kept a cautious eye on the ongoing FBI probe into allegations of Russian election meddling.

The Jerusalem issue could be "an unsettling factor to the global order" and gave a convenient excuse to sell to investors who had been waiting for an opportunity to reap profits on recent gains," Sengoku told AFP.

It was "a cue for profit-taking," he added.

Sentiment also worsened as other Asian stocks dropped, he said, adding that attention was now shifting to how the US markets would fare on Wednesday.

US President Trump to recognise Jerusalem as Israel´s capital

The decision upends decades of careful US policy and ignores dire warnings of a historic misstep that could trigger a surge of violence in the Middle East

The dollar fell to 112.10 yen from 112.57 yen in New York Tuesday afternoon.

In Tokyo stocks trade, Howa Machinery, which makes firearms as well as mainstay industrial machines, jumped 3.71 percent to 1,813 yen.

Banks fell with Mitsubishi UFJ tumbling 2.13 percent to 785.5 yen and Mizuho down 1.27 percent at 201.2 yen.

Toshiba closed up 2.50 percent at 287 yen on hopes that the embattled conglomerate is nearing a deal with Western Digital to settle a legal dispute over the planned sale of its prized microchip business.