Japan stocks extend losses, TOPIX down 3 pct

(Updates to midafternoon)

TOKYO, March 31 (Reuters) - Japanese shares extended losses on Monday, with the broad TOPIX down 3 percent as investors rushed to take profits on the final day of the fiscal year, with blue-chip shares such as Toyota Motor Corp (7203.T) especially vulnerable. Financial shares were also hit hard, with Japan's third-largest bank Mizuho Financial Group (8411.T) down more than 4 percent, after U.S. financial firms fell on concerns about potential dividend cuts.

Trading house Marubeni Corp (8002.T) plunged more than 7 percent. U.S. investment bank Lehman Brothers LEH.N will file a lawsuit against Marubeni on Monday saying it was defrauded of more than $355 million, a source with direct knowledge of the matter said. [ID:nT254231].

"What we're seeing today is profit-taking after shares were boosted on Friday by window-dressing, all typical of the end of the fiscal year," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

"All the representative stocks such as Toyota are being sold, with banks being dragged down as well."

Stocks had surged on Friday, with the Nikkei rising 1.7 percent as investors bought to boost the value of their portfolios and leading Tokyo shares to their most positive week since mid-February.

By 0417 GMT the benchmark Nikkei .N225 was down 2.4 percent at 12,517.09, a loss of roughly 300 points. The broader TOPIX .TOPX was down 3 percent at 1,206.87

Investors are also finding it hard to buy ahead of a raft of economic events later this week, including the Bank of Japan's tankan survey of business confidence due out on Tuesday.

"All of the indicators coming out this week appear likely to point to tough times ahead, so the market may be vulnerable. But the bad news may also have been factored in to some extent," Yamagishi added.

Toyota Motor Co (7203.T) fell 4.8 percent to 4980 yen, becoming one of the top drags on the Nikkei after a 2.5 percent gain on Friday. Honda Motor Corp (7267.T) was also down 4.3 percent at 2,865 yen.

Banks floundered, with Miuzho down 4.4 percent at 369,000 yen, No.3 lender Sumitomo Mitsui Financial Group (8316.T) down 3.4 percent at 663,000 yen and top lender Mitsubishi UFJ Financial Group (8306.T) down 3.5 percent at 855 yen. (Reporting by Elaine Lies)