Nikkei hits 1-month low on U.S. financial worries

*Nikkei falls 2.7 percent to a one-month low

*U.S. financial worries hit banks, insurers

*Exporters, recent gainers lose ground (Adds stocks, details)

By Aiko Hayashi

TOKYO, Aug 19 (Reuters) - The Nikkei average slid 2.7 percent to hit a one-month low on Tuesday as exporters such as Canon Inc (7751.T) and bank shares were battered after jitters about the health of the U.S. financial system re-emerged.

Shares across the board fell, with insurers such as T&D Holdings (8795.T) taking the brunt of the beating.

"Investors who bought stocks yesterday after coming back from summer holidays are dumping them on the disappointing notion that U.S. financial fears are continuing," said Kenichi Hirano, operating officer at Tachibana Securities.

U.S. stocks sank on Monday on financial worries, pushing all three major indexes down about 1.5 percent. [.N]

Shares in Fannie Mae (FNM.N) and Freddie Mac (FRE.N) tumbled after Barron's reported the U.S. Treasury may need to bail out the home finance giants.

Analysts are also bracing for Lehman Brothers LEH.N to report a third-quarter loss of at least $1.8 billion, the Wall Street Journal said. [ID:nN17380162]

The benchmark Nikkei .N225 shed 349.02 points to 12,816.43 by the end of the morning trade, its lowest level since July 18.

The broader Topix declined 2.5 percent to 1,232.56.

"Japanese financial shares had already been weak on poor earnings, and they were further bruised by a fall in their U.S. peers and after a recent rebound. Exporters fell after gains in the last few days," said Yoshinori Nagano, chief strategist at Daiwa Asset Management.

FINANCIALS DOWN

Top lender Mitsubishi UFJ shed 2.7 percent to 822 yen, in line with the market. The bank sweetened its bid for full control of California bank UnionBanCal Corp UB.N by 17 percent to $3.5 billion. [ID:nT257094]

No.2 Mizuho Financial Group (8411.T) fell 2.3 percent to 466,000 yen and Sumitomo Mitsui Financial Group (8316.T), the third-biggest bank, declined 3 percent to 680,000 yen.