TOKYO (AP) _ A former star copper trader at Sumitomo Corp., accused of losing $2.6 billion in 10 years of unauthorized deals, was arrested Tuesday on forgery charges, and authorities searched his home.

The scandal, first disclosed June 13, added to questions about Japanese management and regulatory oversight of financial markets, and led to a 10 percent drop in world copper prices. That decline widened Sumitomo's copper losses from the trades by 44 percent from its original estimate of $1.8 billion.

Yasuo Hamanaka, 48, was arrested on suspicion of forging documents involving metal trading with the U.S.-based Merrill Lynch & Co., the Tokyo Public Prosecutors Office said.

Sumitomo's shares fell 1.6 percent on the Tokyo Stock Exchange, dropping to 920 yen (or about $8.18) from 935 yen ($8.31).

Sumitomo managing director Naoki Kuroda denied that anyone else in the company knew about the unauthorized deals.

``Basically he did it all on his own,'' Kuroda said after Hamanaka's arrest. ``We'd like to get to the truth of what he did.''

Hamanaka, who was fired after two decades as a Sumitomo trader, will be sued for aggravated breach of trust, the company said.

Sumitomo was founded in the 17th century by Masatomo Sumitomo, a former monk who wrote about business ethics. The company's influence was enormous in the international copper market, where it was believed to control up to half the world's production.

Prosecutors did not say where Hamanaka was arrested, or what they confiscated from his home in a Tokyo suburb.

National broadcaster NHK showed footage of Hamanaka, dressed in a suit and tie, being driven from the prosecutors office to the Tokyo Detention Center.

Sumitomo's Kuroda suggested that Hamanaka was able to carry out his trades because he used forged signatures rather than carved seals, the customary means of signing documents in Japan.

However, fraud experts and investigators doubt that Hamanaka could have chalked up losses of such magnitude without others knowing. Allegations that the scandal's central figure tried to fake trading records were raised as long as five years ago.

Prosecutors said Hamanaka forged signatures of his metals department director and a Sumitomo executive on a metal trading contract with a Merrill Lynch subsidiary in January 1994.

Eight months later, Hamanaka, using his reputation as an experienced copper trader, forged the signature of another Sumitomo executive on contracts to allow him to receive deposits from Merrill Lynch subsidiaries through their various metals trading with Sumitomo, prosecutors added.

Merrill Lynch said Tuesday it does not believe it is liable in connection with the investigation.

``Merrill Lynch had no knowledge of any forgery. We conducted all our business with Sumitomo in good faith and an entirely proper manner,'' said James Wiggins, a spokesman in New York for the largest U.S. brokerage company.

Wiggins declined comment when asked if Merrill Lynch lost money in the Sumitomo dealings.

Early Tuesday, Sumitomo filed a criminal complaint against Hamanaka, accusing him of forgery, said Kunio Tsurumi, a spokesman. In Japan, such criminal complaints often are filed as a step to persuade government prosecutors to file their own charges.

The scandal at 300-year-old Sumitomo, one of Japan's most powerful companies, followed on the heels of trouble over massive losses from unauthorized bond trades by a New York-based employee of Japan's Daiwa Bank.

Last year, the bank said Toshihide Iguchi hid more than $1.1 billion in trading losses over 12 years. U.S. authorities forced Daiwa to close its U.S. operations and pay $340 million in fines in February for delaying a report on the losses.

Questions arose at home and abroad about whether something is wrong with Japanese management. The country already was hurting from a series of scandals surrounding a string of failed housing lenders.

After announcement of the Sumitomo losses, government officials and commentators speculated about whether management techniques or eroding morals were to blame.