TOKYO, SEPT. 28 -- Today was another one of those days on the woebegone Tokyo stock market.

It didn't seem to matter that a quick and firm denial was issued to squelch the midday rumor that the outbreak of war in the Persian Gulf was being reported by the British Broadcasting Corp. The rumor still put Japanese investors in a selling mood, and sell they did, driving the Nikkei stock index down 788.41 points, or 3.62 percent, to close at 20,983.50.

Today's decline was the 10th in the last 11 trading days. The 225-share Nikkei index ended the week off nearly 12 percent -- its lowest point in more than 2 1/2 years.

The damage incurred this week was especially painful for brokerage firms and banks because it came at the end of the first half of their fiscal year, when they must appraise their portfolios for accounting purposes. According to the Nihon Keizai Shimbun, Japan's national business daily, a number of medium-sized brokerage companies are likely to report losses for the first time in eight years, and banks will see their capital cushions erode.

"We kept hearing this rumor today that the BBC was reporting war had broken out in the Gulf," said George Nimmo, the stock-trading chief at SBCI Securities (Asia) Ltd. "The BBC denied it; there was no such story, nothing anywhere near it. Despite that, the market had this big sell-off in the afternoon, which means bears will be bears, and any story will do to carry on the selling."

The rumor's impact, agreed a trader at a major Japanese securities firm, "showed how sensitive the market is."

The latest declines, a continuation of a downturn that began early thisyear, has been a source of private satisfaction for some Westerners resentful of Japan's economic success. But the implications for the U.S. and world economies are potentially serious.

Japanese banks are suffering severe losses on their investment portfolios at the same time that they face stiffer regulatory requirements. As a result, they are expected to curb their lending, especially abroad, which could mean a sharp reduction in the outward flow of Japanese funds that helped to buoy the worldwide expansion over the past decade.

The impact in the United States of a drying-up of Japanese investment could be a rise in interest rates -- or a failure of rates to fall -- which would be a most unwelcome development at a time when the U.S. economy is weakening significantly. Such scenarios are adding to the market's pessimism, which stands in stark contrast to the mood that prevailed at the beginning of 1990, when the Nikkei index was flirting with the 40,000 mark.

Traders voiced discouragement over the market's reaction to the BBC rumor. But the one bright spot, they said, was that many big institutional investors have refrained from joining in the selling; most of the downward pressure in recent days has come from individual investors scrambling to raise cash to pay off margin calls.

Each decline in the market forces more individuals to sell stock they bought on margin, so "it's a vicious cycle," said Toshiyuki Nishiguchi, deputy director of the stock department at Daiwa Securities. But the cycle might work in reverse, he added, if favorable developments in the Middle East or elsewhere start pushing stocks back up. "If there's any sign of good news," Nishiguchi said, "the market could react strongly."