Nikkei edges up as banks gain

TOKYO (Reuters) - The Nikkei average rose 0.9 percent on Thursday as bank shares extended gains after the U.S. Federal Reserve slashed rates, though Honda Motor (7267.T) slid after cutting its profit forecasts in its third warning this year.

Panasonic Corp (6752.T) rose after Goldman Sachs (GS.N) agreed to the electronics giant's offer to buy its stake in Sanyo Electric Co Ltd (6764.T), but Sanyo shares fell as the bid was only slightly sweeter than one Goldman rejected earlier this month.

A bold rate cut to as low as zero by the U.S. central bank has ratcheted up the pressure on a reluctant Bank of Japan to follow suit this week, with economists saying to hold back would rock Japanese markets and worsen the crisis.

The BOJ starts its two-day policy meeting later in the day.

"Hopes for an economic recovery in the long-term are helping buoy the market as we seem to be getting into a phase of zero interest rates globally," said Yoshinori Nagano, a chief strategist at Daiwa Asset Management.

The benchmark Nikkei .N225 ended the morning up 74.52 points at 8,687.04, after opening down 0.6 percent.

The broader Topix gained 0.3 percent to 841.10.

The dollar was little changed at 87.30 yen, but stayed in sight of 87.13 yen hit on Wednesday, the lowest since mid-1995, weighing on some exporters.

In Britain, zero interest rates are a possibility and further capital injections may be required in the banking sector, Bank of England Deputy Governor Charles Bean said in an interview published on Wednesday.

BANKS GAIN, HONDA AND SANYO FALL

Banks extended gains booked on Wednesday. Mitsubishi UFJ Financial Group (8306.T), Japan's biggest bank, rose 2.3 percent to 531 yen. Second-ranked Mizuho Financial Group (8411.T) climbed 3.6 percent to 246,100 yen and No. 3 Sumitomo Mitsui Financial Group (8316.T) jumped 6.2 percent to 376,000 yen.

Among brokerages, Nomura Holdings (8604.T) gained 3.9 percent to 664 yen, while Daiwa Securities Group (8601.T) advanced 3.7 percent to 473 yen.

Panasonic added 0.3 percent to 1,029 yen, while Sanyo shed 3.5 percent to 138 yen.

Shares of GS Yuasa Corp (6674.T), Asia's biggest car-battery maker, shot up 8.1 percent to 439 yen a day after announcing a joint venture with Honda to produce and sell lithium-ion batteries, mainly for hybrid cars.

But Honda slid 3.5 percent to 1,825 yen after Japan's No. 2 automaker slashed its operating forecast by two-thirds as the global recession batters car sales and sends the yen soaring.

Toyota Motor Corp (7203.T) fell 1 percent to 3,000 yen.

"As you can see from Honda's forecast, it will likely post a huge loss in the latter half of this business year and the environment surrounding the auto industry is dismal," said Yoku Ihara, a manager at Retela Crea Securities.

"The fallout on other industries such as steelmakers will also be big."

Shin-Etsu Chemical Co Ltd (4063.T) tumbled 8.2 percent to 3,790 yen after the chemicals and wafer maker said it expected to miss its annual earnings forecast as the global financial crisis forces its electronics and car maker clients to cut output.

Trade was light on the Tokyo exchange's first section, with 918 million shares changing hands, compared with last week's morning average of 1 billion.

Declining stocks slightly outpaced advancing ones by 828 to 745.

(Reporting by Aiko Hayashi; Editing by Chris Gallagher)