Nikkei edges up as banks gain, Honda and Sanyo drop

                                
   * Nikkei rises 0.9 pct as banks gain after Fed rate cut
                                
* Investors await outcome of BOJ meeting, expect cut
                                
* Honda slides on profit warning
                                
* Sanyo drops after Goldman agrees to Panasonic bid for Sanyo
 (Adds stocks, details)
                                
 By Aiko Hayashi
                                
 TOKYO, Dec 18 (Reuters) - The Nikkei average rose 0.9 percent
on Thursday as bank shares extended gains after the U.S. Federal
Reserve slashed rates, though Honda Motor <7267.T> slid after
cutting its profit forecasts in its third warning this year.
                                
 Panasonic Corp <6752.T> rose after Goldman Sachs <GS.N>
agreed to the electronics giant's offer to buy its stake in Sanyo
Electric Co Ltd <6764.T>, but Sanyo shares fell as the bid was
only slightly sweeter than one Goldman rejected earlier this
month. [ID:nT242792]
                                
 A bold rate cut to as low as zero by the U.S. central bank
has ratcheted up the pressure on a reluctant Bank of Japan to
follow suit this week, with economists saying to hold back would
rock Japanese markets and worsen the crisis. [ID:nT222002]
                                
 The BOJ starts its two-day policy meeting later in the day.
                                
 "Hopes for an economic recovery in the long-term are helping
buoy the market as we seem to be getting into a phase of zero
interest rates globally," said Yoshinori Nagano, a chief
strategist at Daiwa Asset Management.
                                
 The benchmark Nikkei <.N225> ended the morning up 74.52
points at 8,687.04, after opening down 0.6 percent.
                                
 The broader Topix <.TOPX> gained 0.3 percent to 841.10.
                                
 The dollar was little changed at 87.30 yen <JPY=>, but stayed
in sight of 87.13 yen hit on Wednesday, the lowest since
mid-1995, weighing on some exporters.
                                
 In Britain, zero interest rates are a possibility and further
capital injections may be required in the banking sector, Bank of
England Deputy Governor Charles Bean said in an interview
published on Wednesday. [ID:nLH402761]
                                
 BANKS GAIN, HONDA AND SANYO FALL
                                
 Banks extended gains booked on Wednesday. Mitsubishi UFJ
Financial Group <8306.T>, Japan's biggest bank, rose 2.3 percent
to 531 yen. Second-ranked Mizuho Financial Group <8411.T> climbed
3.6 percent to 246,100 yen and No. 3 Sumitomo Mitsui Financial
Group <8316.T> jumped 6.2 percent to 376,000 yen.
                                
 Among brokerages, Nomura Holdings <8604.T> gained 3.9 percent
to 664 yen, while Daiwa Securities Group <8601.T> advanced 3.7
percent to 473 yen.
                                
 Panasonic added 0.3 percent to 1,029 yen, while Sanyo shed
3.5 percent to 138 yen.
                                
 Shares of GS Yuasa Corp <6674.T>, Asia's biggest car-battery
maker, shot up 8.1 percent to 439 yen a day after announcing a
joint venture with Honda to produce and sell lithium-ion
batteries, mainly for hybrid cars. [ID:nT238249]
                                
 But Honda slid 3.5 percent to 1,825 yen after Japan's No. 2
automaker slashed its operating forecast by two-thirds as the
global recession batters car sales and sends the yen soaring.
[ID:nSP248712]
                                
 Toyota Motor Corp <7203.T> fell 1 percent to 3,000 yen.
                                
 "As you can see from Honda's forecast, it will likely post a
huge loss in the latter half of this business year and the
environment surrounding the auto industry is dismal," said Yoku
Ihara, a manager at Retela Crea Securities.
                                
 "The fallout on other industries such as steelmakers will
also be big."
                                
 Shin-Etsu Chemical Co Ltd <4063.T> tumbled 8.2 percent to
3,790 yen after the chemicals and wafer maker said it expected to
miss its annual earnings forecast as the global financial crisis
forces its electronics and car maker clients to cut output.
[ID:nT238007]
                                
 Trade was light on the Tokyo exchange's first section, with
918 million shares changing hands, compared with last week's
morning average of 1 billion.
                                
 Declining stocks slightly outpaced advancing ones by 828 to
745.
 (Reporting by Aiko Hayashi; Editing by Chris Gallagher)