Nikkei falls to 2-month low, exporters sold

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By Taiga Uranaka

TOKYO, June 27 (Reuters) - Japan's Nikkei stock average was down 2.2 percent on Friday after earlier hitting a two-month low as blue-chip exporters such as Honda Motor Co (7267.T) fell on a stronger yen, record oil prices and steep losses on Wall Street.

Financial shares also slid, with top lender Mitsubishi UFJ Financial Group (8306.T) down 3 percent, after Goldman Sachs forecast more write-downs at Citigroup (C.N) and Merrill Lynch MER.N.

A broad sell-off in the Tokyo market, which extended its losses to a seventh day, came after the Dow industrial average .DJI plunged to a 21-month low.

"It can't be helped. There are only negative factors -- higher oil prices, the credit crunch and a stronger yen," said Katsuhiko Kodama, a senior strategist at Toyo Securities.

Toyota Motor Corp (7203.T) and other automakers fell after General Motors' (GM.N) shares sank to their lowest in 53 years.

Goldman warned that the big U.S. automaker might have to raise capital and cut dividends in a brutal slowdown for the auto industry.

"Some may think the struggles of U.S. rivals could help Japanese automakers, but with the yen and oil situation, Japanese firms will be also negatively affected, especially Toyota, given its lineup of upscale models," Toyo's Kodama said.

Toyota fell 2.3 percent to 5,050 yen, and Honda lost 3.5 percent to 3,620 yen.

The benchmark Nikkei .N225 ended the morning down 307.20 points at 13,515.12, after slipping as far as 13,481.78, its lowest since late April. The broader Topix index lost 2 percent to 1,317.48.

Mitsubishi UFJ fell to 936 yen, and Japan's biggest brokerage Nomura Holdings Inc (8604.T) lost 2.6 percent to 1,583 yen.

JAPAN BOOST OVER?

Japanese stocks have outperformed most major markets in the past quarter, driven up by foreign investors, who have been net buyers every week since the first week of April.

But market participants said it may be over, due to mounting concerns about an economic slowdown in the United States and Japan.

"The market's falling trend has started. The biggest worry is U.S. stagflation, and Japan is not good either, with the tankan expected to be very bad," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center.