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.