TOKYO (AP) _ The dollar fell sharply against the Japanese yen Thursday on selling pressure from foreign investors. Share prices on the Tokyo Stock Exchange also sank.

After opening lower following its overseas trend overnight, the dollar slipped further as U.S. funds and Middle Eastern investors holding long dollar positions began to sell.

The position adjustments triggered stop-loss selling, further eroding the dollar's value, said Masahiro Yamaguchi of Tokai Bank.

In New York, the dollar ended lower Wednesday after a weaker-than-expected U.S. economic report raised the prospect that the Federal Reserve might lower interest rates. Lower rates make dollar-denominated holdings less attractive.

In Tokyo trading, there was little other market-affecting news ahead of a holiday in Europe, Yamaguchi said.

Stock markets, businesses, banks and government offices will be closed Thursday for Ascension Day in Denmark, France, Germany and Switzerland, while the stock market and banks will be closed in Belgium.

At midafternoon, the dollar was quoted at 86.04 yen, down 1.32 yen from late Wednesday and also below its late overnight New York level of 87.23 yen.

On the stock market, the 225-issue Nikkei Stock Average fell 391.31 points, or 2.45 percent, closing at 15,579.44. On Wednesday, the benchmark index had gained 54.60 points, or 0.34 percent.

The Tokyo Stock Price Index of all issues listed on the first section was down 14.72 points, or 1.15 percent, to 1,264.71. On Wednesday, the average had risen 7.69 points, or 0.60 percent.

``The dollar's weakness triggered strong, small-lot selling pressure,'' said Toshiaki Yui, a senior market analyst with Nomura Securities.

Japan's auto trade dispute with the United States and poor Japanese corporate earnings reports for the fiscal year ended March 31 were other factors behind the plunge, Yui added.

A higher yen makes Japanese exports less competitive in price and also lowers the value of overseas earnings brought back to Japan.

Meantime, the price of the benchmark No. 174 10-year Japanese government bonds stood at 111.62 yen in midafternoon trading, up 0.64 yen from Wednesday's close. Their yield fell to 3.0005 percent from 3.080 percent.