Japan stocks at 2-½ yr closing low on yen,credit

(Adds retail investor comment)

By Aiko Hayashi

TOKYO, March 17 (Reuters) - Japanese stocks fell nearly 4 percent to about a 2-½ year closing low on Monday, dragged down by exporters such as Toyota Motor Corp (7203.T) as the dollar hit a 13-year low against the yen, casting a cloud over their earnings outlooks.

Financial shares took a beating as the acquisition of Bear Stearns BSC.N by JPMorgan Chase (JPM.N) exacerbated fears that more financial institutions could become casualties in a widening U.S. financial crisis. [ID:nN16640873]

Investors largely shrugged off the announcement of a Federal Reserve discount rate cut, which market players said was unlikely to be more than a stop-gap move. [ID:nN16507166]

Masaru Hamasaki, a senior strategist at Toyota Asset Management, said the yen had advanced so much in such a short time that companies would find it hard to cope.

"If the yen stays around this level, exporters' earnings will be negatively impacted, not only this year but next year," he said.

"After the de facto bankruptcy of Bear Stearns, investors will likely keep a lookout for similar problems at other banks, though I think we have already seen the extreme situation."

JPMorgan Chase said it would buy investment bank Bear Stearns for $2 a share in a deal in which the Federal Reserve will provide special funding.

"Bear Stearns will be sold for only $2 a share, compared with the recent level of about $30, and that sparked fears among investors about other financials, that things must be really bad," said Yusuke Sakai, manager of equities trading at Mizuho Securities.

The benchmark Nikkei average .N225 fell 3.7 percent or 454.09 points to end at 11,787.51, its lowest finish since Aug. 8, 2005.

The broader TOPIX index shed 3.7 percent or 43.58 points to 1,149.65, the lowest close since June 2005.

Toyota Asset's Hamasaki said the market had hit a bottom in terms of valuations, but sentiment was so bad that it appeared incapable of a rebound.

The mood was also sour among some individual investors.

"Personally, I'm losing lots of money, around 30 million yen ($312,000) or about half of my original investment," said Masaharu Takemoto, 65. "I'll leave stocks alone for now."

EXPORTERS HIT