Nikkei slips 0.9 pct as banks fall, valuations weigh

(Updates to midday)

By Aiko Hayashi

TOKYO, May 8 (Reuters) - Japan's Nikkei average slipped 0.9 percent on Thursday, dragged down by financial shares such as Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research, Stock Buzz) and other recent gainers seen as expensive, while a tumble on Wall Street dampened investor confidence.

Still, resource-related shares such as Inpex Holdings (1605.T: Quote, Profile, Research, Stock Buzz) benefited after oil jumped to a record above $123 a barrel. [O/R]

"Of course, the tumble in New York contributed to the fall here, but what's more important is that Japanese stocks have become rather expensive in terms of valuations," said Norihiro Fujito, general manager of the investment research and information division at Mitsubishi UFJ Securities.

The Nikkei average's expected price-earnings ratio was at 16.5 times on Wednesday, compared to about 16.6 times in Hong Kong and 17.7 times in India, he said.

"Do you think investors would want to buy Japanese stocks, considering their valuations level, just as they would Indian and Chinese stocks?" Fujito said.

The benchmark Nikkei average .N225 ended the morning session down 123.54 points at 13,978.94, after booking its highest close since Jan. 11 on Wednesday.

The broader TOPIX index shed 1.1 percent or 15.56 points to 1,377.72.