Nikkei falls 3.1 pct on yen, overseas bank fears

                                
 * Nikkei down 3.1 pct, could see lowest close in 6 wks
                                
 * Fear about European banks fanned by huge RBS loss
                                
 * Trade thin before Obama inauguration, Wall St response
                                
 * Exporters down on yen, trading houses fall on oil
 (Adds stocks, details)
                                
 By Elaine Lies
                                
 TOKYO, Jan 20 (Reuters) - The Nikkei stock average fell 3.1
percent on Tuesday as Mizuho Financial Group <8411.T> and other
banks slid on worry about European bank stability, while a
stronger yen sparked selling of exporters amid thin trade.
With Wall Street closed on Monday for a holiday, Japanese
investors were taking their cue from Europe, where British shares
fell as the Royal Bank of Scotland <RBS.L> nosedived after
posting the biggest loss in UK corporate history, leading the
banking sector down. [ID:nLJ123391]
                                
 Kyocera Corp <6971.T> and other high-tech shares slipped on
worry about slumping demand amid the global recession, while
trading houses slid after oil fell over $2 overnight.
                                
 But Kirin Holdings Co <2503.T>, Japan's second-largest
brewery, bucked the trend to edge 0.7 percent higher on plans to
buy a 43 percent stake in the beer unit of the Philippine
conglomerate San Miguel Corp <SMC.PS>, a deal that will likely
cost it at least $1.3 billion. [ID:nT218229]
                                
 "The fact that RBS has suffered such a huge loss has revived
worries about financial instability in Europe, while a slightly
stronger yen is pressuring exporters," said Noritsugu Hirakawa, a
strategist at Okasan Securities.
                                
 "There are a lot of hopes for (U.S. President-elect Barack)
Obama, but investors are cautious at this point because they want
to see how Wall Street responds to his inaugural address."
                                
 The market is aware of several variations for Obama's
economic stimulus proposals but the key thing at this point is
when the plans will be enacted, with investors hoping to glean
some hints on this from his speech, Hirakawa added.
                                
 The benchmark Nikkei <.N225> shed 257.83 points to 7,999.02.
If it finishes below 8,000, it would be the first such close in
more than six weeks.
                                
 The broader Topix <.TOPX> lost 2.4 percent to 798.06.
                                
 TUG-OF-WAR
                                
 Attention was currency moves as the yen advanced against the
dollar. The U.S. currency was down 0.3 percent at 90.35 yen
[USD/]
                                
 "There are still strong hopes for economic policies from
Obama, and the tug-of-war between these hopes and the reality of
the poor global economy goes on," said Hiroichi Nishi, general
manager of the equity division at Nikko Cordial Securities.
Bank shares followed global peers lower after Royal Bank of
Scotland said it would report a 2008 loss of up to 28 billion
pounds, the biggest loss in British corporate history [.L]
                                
 Mizuho Financial Group shed 5.8 percent to 229 yen and
Sumitomo Mitsui Financial Group <8316.T> lost 4.1 percent to
3,520 yen. Mitsubishi UFJ Financial Group <8306.T> fell 2.9
percent to 502 yen.
                                
 Trading houses such as Mitsubishi Corp <8058.T> took a hit
after oil prices fell nearly $2 in electronic trading as supply
concerns eased, with Russia and Ukraine signing a gas deal and
Israel and Hamas implementing a ceasefire in Gaza. [O/R]
                                
 New York crude for February delivery <CLc1> was trading at
around $34.70 a barrel, close to levels late on Monday.
                                
 Mitsubishi, Japan's largest trading house, lost 4 percent to
1,239 yen and fellow trader Mitsui & Co <8031.T> fell 3.2 percent
to 893 yen. Itochu Corp <8001.T> fell 6.1 percent to 432 yen.
                                
 Shares of Toshiba Corp <6502.T> fell 5.1 percent to 390 yen
after Mitsubishi UFJ Securities cut its rating on the electronics
conglomerate to "4" from "3", warning of widening losses due to
its struggling chip operations and weak economic conditions.
                                
 Other high-tech shares slid as well, with Kyocera down 2.1
percent to 6,120 yen, Advantest Corp <6857.T> losing 7.3 percent
to 1,209 yen and TDK Corp <6762.T> shedding 4 percent to 3,340
yen.
                                
 Among big exporters, Canon Inc <7751.T> lost 1.6 percent to
2,760 yen, Sony Corp <6758.T> lost 4.3 percent to 1,990 yen, and
Toyota Motor <7203.T> fell 2.0 percent to 2,970 yen.
 Shares of Showa Denko <4004.T> jumped 5.5 percent to 134 yen
after a newspaper reported it and Furukawa Electric Co Ltd
<5801.T>, Japan's top aluminium products maker, were in the final
stage of talks on merging their aluminium operations.
[ID:nT332892]
                                
 Furukawa Electric fell 7.1 percent to 353 yen.
                                
 Trade was light on the Tokyo exchange's first section, with
813 million shares changing hands, compared with last week's
morning average of 899 million.
                                
 Declining stocks outpaced advancing ones by nearly 6 to 1.
 (Reporting by Elaine Lies; Editing by Edwina Gibbs)