Nikkei hits 1-month low as banks, exporters drag

(Updates to mid-morning)

TOKYO, Aug 19 (Reuters) - The Nikkei average slid 2.6 percent to hit a one-month low on Tuesday as recent gainers such as Canon Inc (7751.T) and bank shares took a beating after jitters about U.S. financials hurt investor confidence in the overall market.

Yoshinori Nagano, chief strategist at Daiwa Asset Management, said a fall in U.S. stocks hit almost every sector in the Japanese market, coupled with moves to adjust positions after recent gains.

"Japanese financial shares had already been weak on poor earnings, and they are further bruised by a fall in their U.S. peers and after a recent rebound. Exporters fell after gains in the last few days," he said.

By 0042 GMT, the benchmark Nikkei .N225 shed 336.73 points to 12,828.72, reaching the lowest level since July 18.

The broader Topix declined 2.5 percent to 1,232.66.

U.S. stocks sank on Monday on financial worries, pushing all three major indexes down about 1.5 percent. [.N]

Shares in Fannie Mae (FNM.N) and Freddie Mac (FRE.N) tumbled after Barron's reported the U.S. Treasury may need to bail out the home finance giants, while the Wall Street Journal said analysts are bracing for Lehman Brothers LEH.N to report a third-quarter loss of at least $1.8 billion. [ID:nN17380162]

Top lender Mitsubishi UFJ shed 2.4 percent to 825 yen after the bank sweetened its bid for full control of California bank UnionBanCal Corp UB.N by 17 percent to $3.5 billion. [ID:nT257094]

But Nagano at Daiwa Asset Management said the fall was in line with the market as news of the bid was already out and the U.S. bank was already a Mitsubishi UFJ unit.

No.2 Mizuho Financial Group (8411.T) fell 2.3 percent to 466,000 yen and Sumitomo Mitsui Financial Group (8316.T), the third-biggest bank, declined 2.9 percent to 681,000 yen.

Nomura Holdings (8604.T), Japan's biggest brokerage, gave up 3 percent to 1,477 yen.

Canon dropped 3.8 percent to 5,140 yen, while Honda Motor Co Ltd (7267.T) lost 3.5 percent to 3,600 yen. (Reporting by Aiko Hayashi; Editing by Michael Watson)