Nikkei down 0.6 pct on economy fears, firm yen

(Updates to midmorning)

TOKYO, Aug 20 (Reuters) - Japan's Nikkei average fell 0.6 percent to a one-month low on Wednesday, with bank shares such as Mitsubishi UFJ Financial Group (8306.T) sliding after credit concerns hit their U.S. peers.

Canon Inc (7751.T) and other blu-chip company stocks fell due to a firmer yen and apprehension about their earnings outlooks after the Bank of Japan described the Japanese economy as "sluggish" - a term it hasn't used since the 1997/98 Asian financial crisis. [ID:nT269934]

"U.S. financial worries are responsible for about 80 percent of the market fall here today," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

"The rest is due to the eroding outlook for corporate earnings for the first half. The Bank of Japan used the word 'sluggish' for the first time in 10 years yesterday, prompting concerns the economic recovery will be delayed."

By 0111 GMT, the benchmark Nikkei .N225 shed 76.53 points to 12,788.52 after hitting its lowest level since mid-July.

The broader Topix declined 0.7 percent to 1,226.36.

The dollar was little changed against the yen at 109.76 yen JPY=, having fallen back from a seven-month high of 110.67 yen hit last week. A stronger yen curbs exporters' profits when they are brought back home.

U.S. stocks fell for a second straight session on Tuesday as fears that U.S. home finance firms Fannie Mae (FNM.N) and Freddie Mac (FRE.N) may need a government bailout soured investors on financial shares. [.N]

Top lender Mitsubishi UFJ declined 2.5 percent to 808 yen, while No.2 Mizuho Financial Group (8411.T) fell 1.9 percent to 458,000 yen and Sumitomo Mitsui Financial Group (8316.T), the third-biggest bank, shed 2.1 percent to 668,000 yen.

Canon dropped 2.7 percent to 5,000 yen, while Toyota Motor Corp (7203.T) lost 2.2 percent to 4,810 yen. (Reporting by Aiko Hayashi; Editing by Hugh Lawson)