Nikkei down 0.8 pct, on credit crisis, economic woes

*Nikkei falls 0.8 pct as exporters and banks hurt

*Gloom about the credit crisis, economy hangs over market

*Market shrugs off prospects of economic package (Adds stocks, details) By Elaine Lies

TOKYO, Aug 26 (Reuters) - Japan's Nikkei stock average slipped 0.8 percent on Tuesday, dragged lower by Canon Inc (7751.T) and other exporters amid growing worry about a spreading credit crisis and gloom over the global economy. Mitsubishi UFJ Financial Group (8306.T) and other banks slipped after their U.S. peers slid on growing worries about the health of the U.S. financial sector.

Credit concerns also re-emerged at home as builder Asahi Homes Co 1913.Q plunged after its majority shareholder filed for court protection. Volume was extremely thin for the second straight day, though above the year's low hit on Monday, with market players saying the situation was part of a global trend of investors shunning equities.

"Stocks are suffering around the world, losing out to bonds and some commodities as investors shy away from equity risk," said Yutaka Miura, senior technical analyst at Shinko Securities.

The U.S. financial sector offered up more gloom, including a tumble in the shares of American International Group Inc (AIG.N) after Credit Suisse forecast a huge loss and cut its target price on the world's biggest insurer [ID:nN22333859].

Shares in Lehman Brothers LEH.N fell after a South Korean regulator voiced concern about state-run Korea Development Bank's interest in acquiring a global bank -- interest that had sent Lehman and U.S. shares surging on Friday.

"Yesterday's Tokyo rise was the market simply shrugging off all the bad factors. It's not just Lehman that the market is worried about, but all of the U.S. financial system," said Masayoshi Okamoto, head of dealing for Jujiya Securities.

Additional worry emerged after JPMorgan Chase & Co said the market value of its investment in the preferred stock of U.S. mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N) has dropped by half this quarter and could affect its earnings. [ID:nLQ513556]

"As this announcement shows, the suffering in connection with Fannie and Freddie is spreading, with other U.S. banks likely affected as well -- and possibly even some Japanese banks," Okamoto said.

The benchmark Nikkei .N225 shed 99.95 points to 12,778.71. It had earlier fallen well over 1 percent but pared losses on short-covering after the downside proved solid around 12,650.

The broader Topix slid 0.8 percent to 1,229.35.

A Reuters poll showed that Japanese individual investors became more pessimistic about the stock market in August, worried by further signs of an economic slowdown, profit warnings and selling of Japanese stocks by foreign investors. [ID:nTKX002987]

LITTLE HOPE FROM PACKAGE

Prospects of a Japanese government economic package to ease the pain of high energy and food prices were doing little to lift the market's spirits.

Ruling party policy chief Kosuke Hori said on Monday it was hard to include tax cuts in the package, which he said could be worth 2-3 trillion yen ($18-27 billion) [ID:nT314446], but market players said it would be fairly useless without them.

"At this point it doesn't seem that the package will include anything to promote demand, such as tax cuts, and the scale appears set to be small," said Takahiko Murai, general manager of equities at Nozomi Securities.

Others said that Japan-specific measures were likely to do little in the face of U.S. economic woes and their impact, as shown by the slump in Japanese financials on Tuesday.

No. 3 bank Sumitomo Mitsui Financial Group (8316.T) slipped 1.5 percent to 654,000 yen and top lender Mitsubishi UFJ was down 1.3 percent at 820 yen. The banking subindex .IBNKS.T was down 1.3 percent.

Canon slipped 1 percent to 5,060 yen and industrial robot maker Fanuc Ltd (6954.T) fell 1.8 percent to 8,010 yen, becoming one of the biggest drags on the Nikkei by volume weight. Kyocera Corp (6971.T) was down 0.8 percent to 8,940 yen and Sony Corp (6758.T) down 1.6 percent to 4,230 yen.

Asahi Homes, which trades on the Jasdaq startup market, plunged 28 percent to 42 yen after it said its majority shareholder had collapsed with 62 billion yen ($567 million) in debt, hit by higher costs and a housing slump in Japan.

Trade was thin, with 1.3 billion shares changing hands compared to last week's daily average of 1.59 billion. Decliners outnumbered advancers by two to one. (Reporting by Elaine Lies)