NEC was the hardest hit amid a broad sell-off in Japan's electronics sector, which is struggling to maintain profit margins as competition with overseas rivals drives product prices lower and the global economy slows.

Shares of Sharp Corp <6753.T> tumbled 5 percent after it reported a 14 percent fall in profit, also hit by weak sales of mobile phones. Pioneer Corp <6773.T> lost nearly 10 percent after it fell into the red on slower flat TV sales.

NEC posted a 64 percent fall in operating profit for the April-June quarter, hurt by slowing sales of cellphones and a downturn at its Pasolink microwave communications system business amid intensifying competition with Chinese competitors.

Deutsche Bank cut its rating on NEC to "sell" from "hold" while UBS lowered its rating to "neutral" from "buy."

In a note to clients, Deutsche Bank analyst Takeo Miyamoto said that "...risks are rising in cell phone handsets, on which NEC has pinned comeback hopes, and Pasolink, the main driver of earnings to date."

Shares of NEC closed at a three-month low of 495 yen, wiping out about $1.8 billion in market value. It was the stock's biggest one-day drop since October 20, 1987, when it slid 17 percent in the wake of the "Black Monday" global stock market crash.

The benchmark Nikkei average <.N225> fell 2.1 percent.

The selling frenzy on NEC led to a spike in trading volume to about 64 million shares, six times the previous day's level and the highest in more than two years.

(Reporting by Mayumi Negishi; Editing by Hugh Lawson)