Japan's Nikkei average fell nearly 3 percent on Thursday to its lowest close in five weeks after a surge in Italian bond yields signaled that the worst may not be over in Europe's debt crisis, while banks plunged after a drop in their global peers.

Shares of Olympus Corp (7733.T) were overwhelmed by sell orders and remained untraded, ending down by their daily trading limit or 17 percent. After the close, the Tokyo Stock Exchange placed Olympus on its supervisory list, bringing the 92-year-old firm a step closer to delisting.

Italian 10-year bond yields shot to their highest since the euro was introduced in 1999, after Prime Minister Silvio Berlusconi said he opposed any form of interim government and that the country must hold an election.

The election, which Berlusconi said was unlikely until February, would leave a three-month policy vacuum that could hinder progress on containing the region's debt crisis.

The developments in Italy sent Wall Street down sharply, but Japan's losses weren't as steep because Japan's recent gains weren't as strong, said Kenichi Hirano, operating officer at Tachibana Securities.

The Nikkei .N225 lost 2.9 percent to end at 8,500.80, compared with a 3.7 percent drop in the Standard & Poor's 500 Index .SPX on Wednesday. The broader Topix index .TOPX fell 2.6 percent to 730.30.

The Nikkei advanced 3.3 percent in October, while the S&P gained 11 percent.

Volume was strong compared with recent sessions, with 1.96 billion shares changing hands, up from Wednesday's 1.8 billion shares. Nearly 10 shares fell for each one that gained.

Like their overseas financial counterparts, shares of Japan's three biggest lenders underperformed.

Sumitomo Mitsui Financial Group (8316.T) tumbled 4.7 percent to 2,030 yen and Mitsubishi UFJ Financial Group (8306.T) lost 2.7 percent to 329 yen. They were the second- and third-heaviest traded issues by turnover on the main board, respectively.

Nomura Holdings (8604.T) ended down 3.1 percent at 247 yen after falling as low as 237 yen in the morning session, its lowest since at least 1974, as brokerages fell in the downbeat market.

Nomura shed nearly 15 percent on Tuesday, losing 160 billion yen ($2 billion) in market capitalization, the day Olympus admitted it hid losses dating as far back as the 1990s. Olympus is a client of Nomura, although Nomura was not a financial adviser on any of the deals that are currently at the center of the scandal.

Olympus shares were overwhelmed by a glut of sell orders and ended down 17.1 percent and by their daily limit of 100 yen, at 484 yen. The shares have lost more than 80 percent of their value since October 14.

On Thursday evening the bourse put Olympus on its supervisory list and said it would be delisted if it fails to submit earnings results by December 14.

Shares of trading companies fell as gold prices dropped, and following a fall in crude oil prices on Wednesday.

Mitsubishi Corp (8058.T) lost 4.8 percent to 1,560 yen and Marubeni Corp (8002.T) fell 6.2 percent to 441 yen. Mitsui & Co Ltd (8031.T) tumbled 5.5 percent to 1,111 yen.