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REUTERS — 5:20 AM ET 03/15/11
By Chikafumi Hodo and Antoni Slodkowski

TOKYO (Reuters) - Japan's Nikkei share average plunged 10.6 percent on Tuesday, posting the worst two-day rout since 1987, as hedge funds bailed out after reports of rising radiation near Tokyo. Many mutual funds were left on the sidelines, leaving them poised to dump shares into any rebound.

The yen tripped on talk of intervention by authorities trying to contain the economic impact from last week's devastating earthquake and tsunami, but then recovered. Government bond yields rose as investors sold debt to offset stock market losses.

The scale and speed of the equity selloff forced domestic fund managers to sit on the sidelines as market volumes surged to a record for a second day running.

"Even if we wanted to sell today there was very little we could do," said a manager at a Japanese fund, asking not to be named because he was not authorized to speak to the media.

"We didn't sell and waited, sidelined because hedge funds were just dumping stocks in panic."