Police arrested four executives Monday in the widening stocks-for-favors political scandal that contributed to a "crushing defeat" for Prime Minister Noboru Takeshita in a weekend parliamentary by-election.

The opposition Socialist party beat the ruling Liberal Democratic candidate by a nearly 3-2 margin in the special election Sunday for a single vacant seat in the upper house of the Diet, Japan's parliament.Socialist Party Chairwoman Takako Doi said the election outcome reflected a lack of faith in the ruling party following the "Recruit-gate" stocks-for-favors scandal and passage of an unpopular sales tax.

Police took into custody two top executives of Recruit Co., the firm that allegedly sold lucrative, unlisted shares of stock in exchange for favors, and two executives with Nippon Telegraph and Telephone Corp.

Masahiro Ezoe, 56, the founder of Recruit, was taken from his hospital bed where he has been suffering from stress-related illnesses since the scandal began to unfold last summer. Also arrested was Hiroshi Kobayashi, 43, vice president of Recruit's financing arm, First Finance Co., which lent money to officials to buy the Recruit stock.

Police charged that Ezoe and Kobayashi sold unlisted shares of Recruit Cosmos, a real estate subsidairy, to Ei Shikiba, 54, and Hisahiko Hasegawa, 56, of NTT - both also arrested Monday. In return the NTT executives allegedly gave Recruit special assistance in setting up a business to lease digital telephone lines for computer connections.

Takeshita refused opposition party demands that he resign and call a full election for the Diet. Takeshita's strength has been eroding since the resignations of three Cabinet ministers in December and January due to their involvement in the stock scandal. No politicians were arrested Monday.

The campaign focused on the snowballing Recruit scandal, which has forced the resignation of three Cabinet ministers - Finance Minister Kiichi Miyazawa, Justice Minister Takashi Hasegawa and Ken Harada, Economic Planning minister and one of Takeshita's most trusted followers.