Nikkei at 7-wk closing low on credit fears,Asia stks

(Adds details, stocks)

By Elaine Lies

TOKYO, Nov 5 (Reuters) - The Nikkei average ended at a 7-week closing low on Monday as fears that Citigroup could post large losses on subprime-related investments raised concerns that the credit crunch may be larger than thought, weakening Asian stocks and dragging Tokyo lower. Shares of Citigroup Inc (8710.T) defied the gloom, though, to rise 5 percent on their first day of trade in Tokyo, which came a day after the head of the giant U.S. bank resigned to take responsibility for spiralling losses on subprime-related investments.

Additional selling pressure came from high-tech shares such as Softbank Corp (9984.T), which became the biggest drag on the Nikkei 225 after a brokerage lowered its rating on the stock and cut the target price.

"We were in the strange situation where Tokyo shares fell directly on the Citigroup news this morning, then in the afternoon fell on Asian shares falling on Citigroup," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

"Basically, this just goes to show how sensitive the market is to negative factors right now."

The benchmark Nikkei average .N225 fell 1.5 percent, or 248.56 points, to 16,268.92 -- its lowest close since Sept. 18.

Market players were also inhibited by domestic political uncertainty after Ichiro Ozawa, head of the largest opposition party, tendered his resignation on Sunday after his Democratic Party rejected an offer from Prime Minister Yasuo Fukuda to join a new coalition and end Japan's policy deadlock. Senior party officials were trying to persuade Ozawa to stay on. [nT304818]

But this was seen as a lesser factor than Citigroup. Charles Prince stepped down after four years as Citigroup's chief on Sunday, as the bank said it may suffer an $11 billion write-down for subprime losses, on top of the $6.5 billion it wrote off three weeks ago. [nN01480369]

"Prince leaving is one thing, but the issue of the subprime losses has renewed fears about credit and is having quite an impact," said Masayoshi Yano, a senior manager of investment information at Tokai Tokyo Securities Co Ltd.

Hong Kong's Hang Seng index .HSI tumbled 2.8 percent by midafternoon, while MSCI's measure of other Asia Pacific stocks ex-Japan .MIAPJ0000PUS was down 1.4 percent. Tokyo's broader TOPIX index was down by 1.6 percent at 1,575.13, its lowest close in two weeks. Trade was moderate, with 2 billion shares changing hands on the Tokyo exchange's first section, compared with last week's daily average of 2.1 billion. Declining stocks beat advancers by a ratio of five to one.

TALE OF TWO CITIS Citigroup's Tokyo listing is part of its campaign to rebrand itself as a local firm and improve an image tarnished three years ago, when Japanese regulators shut down its private banking operations for violation of banking laws.

But the listing, news of which had been closely followed by market participants for months, was overshadowed by Prince's resignation.

Shares of Citigroup closed at 4,550 yen, up 5.1 percent from their tentative starting price of 4,330 yen. That price was a conversion into yen of the stock's closing price in New York on Friday.

Citigroup's woes battered Tokyo bank shares, with Mitsubishi UFJ Financial Group (8306.T) sliding 3.3 percent to 1,017 yen and Mizuho Financial (8411.T) down 3 percent at 589,000 yen.

But the biggest drag on the Nikkei 225 came from Softbank, which tumbled 5.1 percent to 2,675 yen after Nikko Citigroup lowered its rating on the stock to "3S" from"2S" and cut its target price to 2,300 yen from 2,350 yen, citing growing competition with rival NTT DoCoMo Inc (9437.T).

Market participants said Softbank, which owns a 33 percent stake in Alibaba Group, was also pressured ahead of Tuesday's initial public offering of Alibaba.com [ALI.UL], China's largest e-commerce company, on the Hong Kong Stock Exchange. The market gained some support from Daiichi Sankyo Co Ltd (4568.T) as it soared 7.4 percent to 3,620 yen after a study showed that the anti-clotting drug it was developing with Eli Lilly and Co (LLY.N) was better able to prevent heart attacks than the standard treatment Plavix.

The drug can, however, lead to excess bleeding, a study released on Sunday found, a shortcoming that could curb its usefulness. [ID:nN04194979]