Nikkei drops on Europe, U.S. debt worries

* Nikkei marks lowest close since March 2009
* Benchmark may break key support this week -strategist
* TSE trades for extra half hour as planned, volume still
thin
* Downside supported by hopes for ETF buying by BOJ
* Olympus surges despite deepening probe as speculators buy

By Lisa Twaronite and Mari Saito
TOKYO, Nov 21 (Reuters) - The Nikkei average fell to
its lowest closing level since March 2009 on Monday, with key
support looking fragile as newly installed European leaders
grapple with sovereign debt woes and as a U.S. bipartisan
committee looked set to miss a deficit reduction deadline.
Olympus Corp surged 16 percent, rising by its daily
limit as speculators rushed to buy shares of the troubled
company even as long-term holders have cut their stakes and the
company's outlook remains far from clear.
In the United States, sources said the bipartisan
deficit-reduction committee will announce that they failed to
meet their deadline to find $1.2 trillion in budget cuts over
the next decade.
"Tomorrow could be scary, if the U.S. misses its deadline,"
Yutaka Miura, senior technical analyst at Mizuho Securities.
"Depending on how U.S. stocks react, the Nikkei could break
through support at the Oct. 5 low of 8,343," he added.
The Nikkei fell 0.3 percent to 8,348.27, within
sight of that level, after falling as low as 8,343.93. The
broader Topix index lost 0.4 percent to 717.08.
About 1.23 billion changed hands on the main board, below
Friday's 1.45 billion and last week's average of 1.39 billion
shares.
Volume was light even though the Tokyo Stock Exchange began
new trading hours on Monday, with the morning session extended
by a half-hour to 11:30 a.m. Tokyo time (0230 GMT).
"Despite the fact that they extended morning trading hours,
volume remains extremely thin and most investors are staying put
in this market," said Fumiyuki Nakanishi, strategist at SMBC
Friend Securities.
New leaders in Greece, Italy and now Spain are rushing to
enact austerity measures amid bond yields close or at 7 percent
ahead of a meeting with euro zone leaders later this month to
finalise the European Financial Stability Facility (EFSF).
The BOJ announced it bought exchange-traded funds worth 16.4
billion yen ($213 million) and 700 million yen of REITs on
Friday, and expectations of further buying provided some support
for shares.
But such buying could slow, as the central bank has incurred
a latent loss of over 40 billion yen ($520 million) on its ETF
holdings as of the end of September, Reuters calculations show.

SWINGING SHARPLY
Shares of embattled Olympus reversed Friday's 16 percent
drop, ending at 725 yen.
The rebound came even as investigators continued to probe
whether funds used to cover up losses were funnelled to criminal
groups. Scrutiny is set to increase on deals not yet in the
spotlight, including an ill-fated $780 million investment in
technology firm ITX.
Automakers underperformed the broad market in heavy trading,
as the dollar slipped below 77.00 yen, raising fears that
a strong Japanese currency will take a bigger bite out of their
profits if the dollar falls further on the deficit reduction
impasse.
Toyota Motor Corp fell 2.6 percent to
2,385 yen after earlier dropping to 2,376 yen, its lowest level
since May 1996. It was the second-heaviest traded issue by
turnover.
Rivals Honda Motor Co shed 2.2 percent to 2,153 yen
and Nissan Motor Co dropped 3 percent to 653 yen.
Elpida Memory Inc lost 7.3 percent to 319 yen,
continuing its recent fall on investor concerns about weak
demand and low prices for DRAM chips.
Japan's biggest maker of the chips has shed about a third of
its value since Oct. 27, when it posted a quarterly operating
loss on weak demand for PC chips. Since then, the flooding in
Thailand has made the supply situation even worse and further
weighed on demand.
Mobile social gaming network operator DeNA Co
tumbled 12.4 percent to 2,302 yen and was the heaviest-traded
issue by turnover.
After the close, rival Gree said it and KDDI Corp
filed a suit on Monday against DeNA over claims that
the Mobage game site operator was blocking content providers
from supplying games to other platforms. Gree shares lost 5.1
percent to 2,614 yen and KDDI added 1.3 percent to 545,000 yen.