Nikkei hits three-week closing low as exporters take hit

By Elaine Lies

TOKYO (Reuters) - Japan's Nikkei stock average fell 2.3 percent on Monday to hit a three-week closing low, with exporters hit by a stronger yen and weak consumer spending data that sparked a broad Wall Street sell-off. Sony Corp (6758.T) sagged nearly 6 percent as investors shrugged off the electronics maker's upward revision to its earnings forecast, instead moving to take profits.

But shares of Aiful Corp (8515.T) and other Japanese consumer lenders soared after a source said the government may ease regulations that have crippled the industry and raised hurdles for small businesses seeking loans.

"While shares in Asia are down, the fact that falls were limited and the yen has actually retreated a bit against the dollar have helped keep the Nikkei from sliding further," said Kenichi Hirano at Tachibana Securities.

Tokyo analysts also said that while investors had been spooked by the bankruptcy filing of U.S. lender CIT Group CIT.N and concerns about Citigroup's (C.N) balance sheet, these were no longer a major market factor. "If, for example, there was worry the way there was when Lehman failed, there would have been much sharper falls," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

"The CIT failure appears much more managed, much more like GM in that way. It's not at all the same thing."

CIT's bankruptcy, one of the largest in U.S. corporate history, had been widely expected for months, but it could further constrict credit and weigh on the fragile U.S. economy. Accounting expert Robert Willens said Citigroup (C.N) was likely to have a $10 billion fourth-quarter charge on its deferred tax assets.

But others remained wary.

"Economic indicators are beginning to show uncertainty about the future, despite solid corporate earnings results so far," said Yutaka Miura, a senior technical analyst at Mizuho Securities.

"We have a bunch of news including CIT that is making investors nervous about the outlook for the economy as well as earnings going forward."

In thin trade, the benchmark Nikkei .N225 shed 231.79 points to 9,802.95 after earlier falling as much as 3 percent to 9,736. It was its lowest close since October 7.

The broader Topix fell 1.6 percent to 880.54.

Japanese markets will be closed on Tuesday for a holiday.

The S&P .SPX lost 2.8 percent on Friday as the fragility of the U.S. economic recovery was highlighted by economic reports that showed U.S. consumers cut spending in September and consumer sentiment turned gloomier this month.

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The yen rose to two-week highs against the dollar around 89.20 yen in early Asian trade, but the dollar had clawed back to 90.03 yen by midafternoon. Investors fret about a stronger yen as it eats into exporters' profits when they are repatriated.