Nikkei loss biggest in month, economy fear bites

* Nikkei sheds 6.9 pct, biggest one-day loss since Oct 22

* Lowest close since Oct 28, when hit 26-yr intraday low

* Market players say could test October lows

* Strong yen hits exporters, especially high-tech shares

* Banks battered by fears about Citigroup, earnings (Adds stocks, details)

By Elaine Lies

TOKYO, Nov 20 (Reuters) - Japan's Nikkei average fell 6.9 percent on Thursday for its biggest one-day loss in a month as exporters such as Canon Inc (7751.T) were nailed by a stronger yen and fears that a worsening global economy will hit earnings. Mitsubishi UFJ Financial Group (8306.T) fell to its lowest level in more than five years and other large banks tumbled as well after shares in Citigroup Inc (C.N) plunged 23 percent to a 13-year low as investors questioned prospects for survival of the U.S. banking giant. [ID:nN19311307]

Concern that the deteriorating global economy is biting into Japan's export-dependent economy intensified after the nation's exports logged their biggest annual decline in seven years in October, pushing the trade balance into deficit. [ID:nT254579]

Investors were also concerned about demand from the United States after consumer prices in the world's biggest economy fell at the sharpest rate on record in October. [ID:nN18276780]

The benchmark Nikkei .N225 shed 570.18 points to 7,703.04 its lowest close since Oct. 28 -- the day it touched a 26-year intraday low of 6,994.90. It was its biggest one-day percentage loss since Oct. 22. The Nikkei has lost 9 percent this week and 10 percent this month.

Market players said the Nikkei could well test its October lows should Wall Street remain vulnerable and the dollar continue to tumble. The U.S. currency lost nearly one yen on Thursday and was fetching around 95.17 yen JPY=. "Up until now the big worry was only financial firms, but now there are also the automakers, meaning there are several layers of problems," said Yutaka Miura, a senior technical analyst at Shinko Securities.

"We have to consider that it might break below the October low, especially if U.S. stocks keep on falling and the dollar falls towards 90 yen again." Citigroup was facing a crisis of confidence on Wednesday on concerns that mounting losses from credit cards, mortgages and toxic debt could overwhelm its efforts to slash costs and add deposits. Its shares closed down $1.96 at $6.40 and have fallen 33 percent this week.

"Shares in all the U.S. financials are really low, which gives me a bad feeling and makes me wonder what might lie ahead," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

"Citigroup shares closed at the $6 level. That's the kind of level at which almost anything could happen."

BANKS BATTERED

Major banks fell, with some market players saying Citigroup worries were weighing while others said they were hit by woes much closer to home.

Mitsubishi UFJ Financial Group posted a 61 decline in second-quarter profit on Tuesday and stuck to its recently lowered full-year forecast, hit by a recession at home and losses on its extensive stock portfolio. [ID:nT305164]

Sumitomo Mitsui Financial Group (8316.T), Japan's No.3 bank, said on Wednesday it will raise at least $2.9 billion in an issue of preferred securities, becoming the latest Japanese bank to bolster its capital base amid the financial crisis. [ID:nT328098]

Mitsubishi UFJ lost 6.1 percent to 480 yen after touching its lowest point since early 2003. Sumitomo Mitsui Financial Group shed 10.4 percent to 281,500 yen, at once point hitting its lowest since mid-2003.

Mizuho Financial Group (8411.T) lost 6.3 percent to 199,200 yen, a three-week low.

Amid the growing gloom, some of the biggest worry centred on U.S. automakers such as General Motors Corp GM.N as prospects for an auto bailout dimmed. [ID:nN19320198]

"A failure by GM or any of the Big Three would hit U.S. consumption and drag its economy down still more," said Marusan's Ushio.

Isuzu Motors (7202.T) tumbled 16.9 percent to 123 yen and Honda Motor Corp (7267.T) fell 6.8 percent to 1,906 yen.

Hit especially hard were high-tech exporters such as Kyocera Corp (6971.T), which slipped 8.5 percent to 4,520 yen, and TDK Corp (6762.T), which fell 12.1 percent to 2,750 yen.

Canon fell 7 percent to 2,610 yen, Panasonic Corp (6752.T) lost 7.7 percent to 1,350 yen and Sony Corp (6758.T) fell 6.4 percent to 1,826 yen.

Trade picked up slightly, with some 2.11 billion shares changing hands on the Tokyo exchange's first section, the same as last week's daily average.

Declining shares outnumbered advancing ones by about 12 to 1. (Editing by Michael Watson)