HONG KONG (MarketWatch) — Japanese equities crashed Tuesday on panic selling after Prime Minister Naoto Kan said a “substantial amount” of radiation was leaking from a nuclear power plant affected by Friday’s massive earthquake and tsunami.

The share plunge could now have wider impact on global markets, said some analysts, while others said the global markets were unlikely to follow suit and that the hefty losses this week in Japan presented a buying opportunity.

The Nikkei Stock Average (NI225) nosedived more than 14% at one point in afternoon trading on a fresh wave of what appeared to be indiscriminate selling across sectors, before recovering a little to close down 10.6% at 8,605.15 for its worst tumble since 2008.

Tokyo residents return to work

The latest sell-off, which followed Monday’s 6.2% tumble, came after one more explosion was reported at Tokyo Electric Power Co.’s (9501) TKECY, -1.62% Fukushima Daiichi plant’s No. 2 reactor, on top of previous explosions at No. 1 and No. 3 reactors. Authorities said there was a fire at No. 4 reactor, though that was later reported extinguished. See full story on Japanese nuclear crisis.

Shares of the plant operator ended 24.7% lower in Tuesday trade.

Prime Minister Naoto Kan said there was high risk of radiation leak from the facility, and asked residents near the facility to stay indoors, saying “substantial amounts of radiation are leaking in the area.”

The sell-off was made worse by reports citing readings from the Tokyo metropolitan government that radiation levels in the Japanese capital surged to 23 times the normal level Tuesday.

“Over the weekend, global sentiment outside of Japan was far too optimistic. ... This thing is still unfolding, as we trade the market. The only drivers coming out are increasing risks and more negative news and higher probability of an unfortunate outcome,” said Ben Collett, head of Japanese equities at Louis Capital Markets.

“Global markets are ignoring the impact of this. ... With a 12% down-move on the Nikkei, you’ve got to sell not just the Nikkei but also the S&P” and other global markets, unless we see a Japanese government-led and coordinated move to support markets, said Collett.

However, another analyst said the panic-selling was unlikely to be repeated in other global markets.

The Japanese market reaction Tuesday was “purely event- and rumor-driven,” said Uwe Parpart, chief economist and Asia strategist at Cantor Fitzgerald in Hong Kong.

“That creates a situation in which rumors are rife and are swirling. Under those circumstances, we’ve seen panic selling,” Parpart said. “Japan is the world’s third largest economy, and if something goes wrong there, there’s an impact on the world. But I think this is a short-term phenomenon and that actually, in Europe and U.S. the reaction will be much more subdued.”

He also said that it doesn’t make “any sense” to sell in the current market in Tokyo.

“How many times in a lifetime do you see a major market drop nearly 20% in two days? Professional investors should and will look at buying opportunities at this point,” he said.

Tuesday’s plunge for the benchmark, which was among Asia’s best performing indexes in 2011 not many days ago, gave the Nikkei a net loss of almost 16% in the year to date at its latest level Tuesday.

The Japanese yen slipped in currency trading, however, with the U.S. dollar buying 81.75 yen from ¥81.71 the previous day, but the euro fell to ¥113.97 from ¥114.32.

Among the worst-hit shares in Tokyo, Toshiba Corp. (6502) TOSYY, -0.54% lost 19.5%, Hitachi Ltd. HIT, (6501) ended down 12.6%, Sumitomo Metal Industries Ltd. (5405) SMMLY shed 15.9% and financial services company Aiful Corp. (8515) AIFLY, +8.33% sank 18.4%.

Other Asian markets also fell sharply, though the decline was much less.

Hong Kong’s Hang Seng Index (HANGSENG) sank 3.2%, Taiwan’s Taiex gave up 3.4%, China’s Shanghai Composite (SHCOMP) fell 1.6%, South Korea’s Kospi lost 2.4% Australia’s S&P/ASX 200 (XJO) gave up 2.1%, and India’s Sensex (SENSEX) surrendered 1.1%, all in apparent reaction to the nuclear situation in Japan.