Nikkei down 1.5 pct, hit by U.S. credit worries

*Nikkei down 1.5 percent, led down by bank shares

*Banks hit by growing U.S. credit worries

*Hokkaido Elec Power falls on its loss forecast (Adds stocks and comments)

By Taiga Uranaka

TOKYO, July 15 (Reuters) - The Nikkei share average fell 1.5 percent on Tuesday as financials such as Japan's top lender Mitsubishi UFJ Financial Group (8306.T) tumbled on worries about the health of the U.S. banking sector.

Hokkaido Electric Power Co (9509.T) also slid after the regional utility said it expected to post losses this business year hit by surging fuel prices and outage work at a nuclear power plant. [ID:nT167428]

U.S. financial shares were hit on Monday amid growing alarm about regional banks following the collapse of mortage lender IndyMac Bancorp Inc IMB.N. A U.S. government pledge of support to stabilise the nation's top mortgage agencies Fannie Mae (FNM.N) and Freddie Mac (FRE.N) failed to curb worries.

"The U.S. is suffering a compound fracture" said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center.

"The Fannie Mae and Freddie Mac problem could come to an end if the government were to eventually take over, but inflation and the downturn in the economy remain," he said.

The benchmark Nikkei .N225 ended the morning down 193.20 points at 12,816.96. The broader Topix lost 1.6 percent to 1,260.26.

Domestic concerns were also weighing on the market.

Later in the day, the central bank is expected to keep interest rates on hold and warn that Japan's growth will likely be slower than it had anticipated a few months ago due to skyrocketing oil and raw materials prices. [ID:nT70058]

"Japan has been widely perceived to have relatively stable (consumer) prices, but the Bank of Japan might raise its inflation outlook and sharply downgrade its economic overview," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

Among bank shares, Mitsubishi UFJ slid 4 percent at 939 yen and No. 2 Mizuho Financial Group (8411.T) dropped 3.5 percent to 519,000 yen.

The Nikkei business daily said Japan's top three banks had roughly 4.7 trillion yen ($44.3 billion) in debt securities issued by U.S. top mortgage finance agencies as of the end of March. [ID:nT156412]