Japan Nikkei slips on economy worries, banks drag

(Updates to midmorning)

TOKYO, Aug 7 (Reuters) - Japan's Nikkei stock average slipped 0.8 percent on Thursday as concerns about the domestic economy grew, with Mitsubishi UFJ Financial Group (8306.T) and other banks sinking after disappointing results among U.S. peers. But the fall was checked by gains among some exporters, while oil and gas field developer Inpex Holdings Inc (1605.T) climbed on a brokerage upgrade. "Certainly the environment is one that should be positive, with the weaker yen and lower oil prices," said Hideyuki Ishiguro, supervisor at the investment strategy department at Okasan Securities.

"But the idea that Japan's economy isn't good is spreading, and the weaker yen now is starting to appear to be the result of this rather than simple risk avoidance, so it's not having its usual positive impact," he added.

Japan's longest post-war economic expansion may be over, government figures showed on Wednesday, as an index of indicators including industrial output and corporate profits sank in June. [JPCIIN=ECI]

This sense of gloom lingered on Thursday even though core private-sector machinery orders, a key gauge of corporate capital spending, fell 2.6 percent in June, smaller than economists' consensus forecast for a 9.6 percent drop. [JPMORD=ECI]

The benchmark Nikkei .N225 had shed 102.97 points to 13,151.92, while the broader Topix was down 1 percent to 1,264.66.

Banks sagged after American International Group Inc (AIG.N), the world's largest insurer, posted its third consecutive quarterly net loss on Wednesday, hurt again by the write-down of derivatives linked to bad mortgage investments.

Top lender Mitsubishi UFJ Financial Group fell 3.2 percent to 876 yen, while No. 3 bank Sumitomo Mitsui Financial Group (8316.T) fell 3.2 percent as well, to 716,000 yen. Mizuho Financial Group (8411.T) sank 2.3 percent to 481,000 yen.

Losses were checked by gains among exporters such as Honda Motor Corp (7267.T), which climbed 1.2 percent to 3,480 yen, and Canon Inc (7751.T), which edged up by 0.4 percent to 5,110 yen.

Inpex rose 3.8 percent to 1.06 million yen after Nikko Citi raised its rating to "buy/high risk" from "hold/high risk," saying the oil and gas field developer was likely to report strong earnings and raise its outlook when it announces first-quarter results on Friday. (Reporting by Elaine Lies; Editing by Hugh Lawson)