Nikkei falls nearly 3 pct, banks and techs hit

* Nikkei falls nearly 3 pct, weighed down by techs and banks

* Banking fears revived by climb in Bank of America bad loans

* Tech shares hurt by IBM results

* Exporters hit by strong yen, Toyota slides

TOKYO, April 21 (Reuters) - Japan's Nikkei stock average dropped 2.9 percent on Tuesday after a surge in bad loans at Bank of America revived worries about the U.S. financial system and economy, and after a stronger yen hit exporters such as Honda Motor Co (7267.T). Tech shares also slid in the wake of worse-than-expected results from IBM (IBM.N).

The 41 percent climb in Bank of America's (BAC.N) first-quarter non-performing assets revived broad risk aversion, hitting equity markets and boosting the yen.

"The euro and the Australian dollar have really fallen as risk aversion rises, and while the yen isn't really strong, it too is benefitting from this," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities. "But basically the idea is that both Wall Street and the Nikkei have risen over the past few sessions, and it was time for a break anyway."

The dollar was slightly down against the yen on the day after falling 1.2 percent on Monday, hurting exporters since their profits decrease when repatriated if the yen gains. JPY= The euro fell to a one-month low of 126.10 yen before recovering slightly, while the Australian dollar fell against the Japanese currency as well. EURJPY=R AUDJPY=R

Bank of America said its credit quality deteriorated markedly, sending its shares plunging 24.3 percent and raising questions about the sustainability of recent better-than-expected results from the banking sector. [ID:nN20380236]

After the bell, IBM (IBM.N) reported a larger-than-expected fall in quarterly sales, but tech bellwether Texas Instruments TXN.N reported a small quarterly profit and better-than-expected revenue. [ID:nN20352411] [ID:nN20403813]

The benchmark Nikkei .N225 shed 247.49 points to 8,677.26, while the broader Topix .TOPX lost 2.6 percent to 826.23. Japan's biggest bank, Mitsubishi UFJ Financial Group (8306.T) lost 2.4 percent to 485 yen, while No. 2 bank Mizuho Financial Group (8411.T) fell 2.5 percent to 192 yen. Sumitomo Mitsui Financial Group (8316.T) lost 2.5 percent to 2,955 yen.

Panasonic Corp (6752.T) fell 4.4 percent to 1,304 yen and Canon Inc (7751.T) lost 5.2 percent to 2,930 yen. Sony Corp (6758.T) tumbled 6.2 percent to 2,495 yen.

Honda lost 4.5 percent to 2,740 yen and Toyota shed 4.7 percent to 3,690 yen.

A newspaper reported that Toyota (7203.T) will likely produce about 6.2 million vehicles globally this financial year, a newspaper reported, falling more than 12 percent amid a global sales slump but roughly in line with expectations.

KDDI Corp (9433.T) bucked the trend, rising 2 percent to 456,000 yen after the Nikkei business daily said Japan's second-biggest wireless carrier is expected to report a 12 percent rise in operating profit to about 450 billion yen ($4.6 billion) for the fiscal year ended March 31. [ID:nBNG423551] (Reporting by Elaine Lies; Editing by Edwina Gibbs)