UPDATE 2-Otsuka Holdings fails to exercise greenshoe option

* Demand for newly debuted stocks in Japan weak

* Stock has been trading below its IPO price

* IPO price was at lower end of range

* Stock ends 1.5 pct higher on Tuesday in line with market (Adds details)

By Junko Fujita

TOKYO, Jan 4 (Reuters) - Drugmaker Otsuka Holdings 4578.T failed to sell an extra allotment of shares to investors after a $2 billion-plus IPO due to its sluggish stock performance, in a sign of ongoing weak demand in Japan for newly debuted shares.

Some 90 million shares were sold in the world’s largest IPO by a drugmaker, and Otsuka had earmarked another 4.5 million shares to be sold by shareholders if demand for the stock was strong.

But Otsuka's shares have been below its IPO price of 2,100 yen since its second day of trade and underwriters were forced to buy those 4.5 million shares from the market to allocate them to investors, according to a document recently filed with the Tokyo Stock Exchange by Nomura Holdings 8604.T, one of the underwriters.

Otsuka’s IPO price had also been conservative, at the lower end of an initial price range of 2,000-2,400 yen.

A similar fate also befell Pola Orbis Holdings 4927.T, Japan's fourth-biggest skincare and cosmetic firms, which failed to fully exercise its green shoe option after it went public in December in the nation's fourth biggest debut for 2010.

Pola had planned to sell 2.6 million additional shares but only sold just under two thirds of that amount and underwriters ended up buying 1.1 million shares from the market.

The number of Japanese companies going public has more than halved since the global financial crisis with just 22 last year compared with 49 in 2008, although that was slightly higher than the 20 in 2009.

Even companies that have managed to fully exercise their greenshoe options have seen their stock prices perform badly.

Shares in Dai-ichi Life Insurance 8750.T, which went public in an $11 billion IPO, have been performing below its IPO price for the past six months and remain some 3 percent under that level.

And Paltec Corp 8283.T, a wholesaler of cosmetics and detergents, Japan's No.3 IPO last year, rdmains 34 percent below its offer price.

Otsuka's shares closed 1.5 percent higher at 2,029 yen on Tuesday in line with the broader market. Nomura, Morgan Stanley MS.N and UBS AG UBSN.VX handled Otsuka's IPO. (Editing by Edwina Gibbs)