Nikkei slides 3.4 pct on econ worry, Toshiba sinks

                                
 * Nikkei down 3.4 pct after rally, exporters slide
                                
 * Toshiba tumbles on loss, chips op merger talk with NEC
                                
 * Nintendo plunges by daily limit
                                
 * U.S., Japan grim economy data weigh
 (Adds details)
                                
 By Aiko Hayashi
                                
 TOKYO, Jan 30 (Reuters) - The Nikkei average slid 3.4 percent
on Friday, with Toshiba <6502.T> shares plunging on news that it
may merge some chip operations with NEC <6701.T>, while a firmer
yen and deepening recession worries hit other exporters.
                                
 Nintendo Co <7974.OS> tumbled after it cut its Wii game
console sales target and profit forecasts. [ID:nT139304]
                                
 Toyota Motor Corp <7203.T> fell after source said its annual
operating loss is likely to be bigger than the automaker's latest
forecast, though market analysts said that had been largely
factored in. [ID:nTKF104269]
                                
 Adding to the gloom, Japanese industrial production fell a
record 9.6 percent in December, while core annual inflation
slowed to 0.2 percent, in further signs of a deepening recession.
[ID:nT106804]
                                
 "There is no sign of bottoming out. As industrial output
posted a record drop, it is hard to expect a recovery anytime
soon," said Daisuke Uno, chief strategist at Sumitomo Mitsui
Banking Corp.
                                
 U.S. data also showed the amount of people filing for
unemployment benefits hit a record in mid-January, while orders
for long-lasting goods fell for the fifth straight month in
December and new home sales slid to a record low. [.N]
                                
 The benchmark Nikkei <.N225> shed 276.19 points to 7,975.05.
It ended up 1.8 percent on Thursday, marking a three-day winning
streak, in which it had gained more than 7 percent.
                                
 The broader Topix <.TOPX> lost 3 percent to 794.03.
                                
 Toshiba, the world's No. 2 NAND flash memory maker, is in
talks with NEC, that will likely focus on Toshiba spinning off
its system chip operations and merging them with NEC Electronics
<6723.T>, a person with knowledge of the discussions said.
[ID:nT241049]
                                
 "It shows they can't survive on their own. Despite some cost
cut impact, it's doubtful if they can beat their international
rivals even as a team. The domestic chip industry appears at the
brink of death," said Fumiyuki Nakanishi, manager at SMBC Friend
Securities.
                                
 Goldman Sachs cut its rating on Toshiba to sell from neutral.
                                
 The news comes after Toshiba posted a third-quarter loss of
$1.8 bln and cut its annual earnings forecast.
                                
 TOSHIBA TUMBLES
                                
 Toshiba shares, the most traded stock by turnover on the main
board, dived 14.8 percent to 328 yen, while NEC dropped 5.3
percent to 248 yen. But NEC Electronics gained 5.9 percent to 642
yen.
                                
 Toyota Motor Corp <7203.T> shed 3.9 percent to 2,930 yen,
while smaller rival Honda Motor Co <7267.T> dropped 6.8 percent
to 2,125 yen.
                                
 Other exporters also took a beating. Electronic components
maker TDK Corp <6762.T> skidded 5.5 percent to 3,450 yen and
industrial robot maker Fanuc Ltd <6954.T> sank 6.7 percent to
5,460 yen.
                                
 The dollar dipped 0.3 percent to 89.75 yen <JPY=>, though
still off a 13-