* Nikkei down 4.5 pct, biggest one-day drop in over 2 months
* Over half of last week’s gains erased as autos, banks fall
* U.S. task force rejects automakers’ restructuring plans * Yen gains as well, hitting exporters
TOKYO, March 30 (Reuters) - Japan's Nikkei stock average fell 4.5 percent on Monday, its biggest one-day fall in over 2 months, as automakers tumbled after a U.S. task force rejected the restructuring plans of General Motors GM.N and Chrysler LLC. In a stunning reversal for management at both automakers and GM investors and creditors who had bet on a softer line, the Obama administration task force warned both firms could be put through bankruptcy to slash debts. [ID:nN30310350]
The news sent the dollar down 0.8 percent against the yen, undercutting exporters such as Canon Inc 7751.T, while banks, already weak on downbeat comments from U.S. bank executives, extended losses on worries about the impact of a GM bankruptcy.
“The fact that there’s still a chance of GM going bankrupt is shocking,” said Takashi Ushio, head of the investment strategy division at Marusan Securities.
The benchmark Nikkei’s slide, which erased more than half of last week’s 8.6 percent gain, was its biggest one-day fall since Jan. 15.
Market players said that while was the news was enough to add momentum to selling, they were not necessarily convinced that a bankruptcy was in the offing.
“First, this is just a suggestion, and nothing concrete is decided about whether GM would in fact go through bankruptcy,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.
“Mainly this came at a bad time for the Japanese market, which rose so sharply last week, providing investors with a good reason to take profits.”
The Nikkei shed 390.89 points to 8,236.08, while the broader Topix .TOPX fell 4.2 percent to 789.54 as banks, automakers and tech shares -- all strong gainers last week -- were hit.
But market analysts said the Nikkei that it was unlikely to plunge back down towards a 26-year low just under 7,000 that it flirted with this month.
“Manufacturers are likely to have bottomed out already, and it’s hard to think it could fall back towards 7,000 very quickly,” said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.
“Besides, the Nikkei has risen quite fast, and it wouldn’t be all that surprising for profit-taking to take it down even as far as 8,000.”
Trade was active although less than last week, with 2.2 billion shares changing hands compared to last week’s daily average of 2.27 billion. Declining shares outnumbered advancing shares by more than 5 to 1.
SIGNS OF HOPE?
Japanese industrial output slid for a fifth month in a row in February as weak exports weighed on an economy mired in its worst recession since World War Two, but there were tentative signs of recovery.
Manufacturers said they expected output to rise in March and April and they reported a record fall in inventories, showing that rapid production cuts in response to the global financial crisis had helped reduce huge stockpiles of unsold goods. [ID:nT73964]
Honda Motor Co 7267.T fell 6.7 percent to 2,300 yen, becoming the biggest drag on the Nikkei 225 by volume weight.
Mazda Motor Corp 7261.T tumbled 11.9 percent to 171 yen. Toyota Motor Corp 7203.T shed 3.7 percent to 3,140 yen and auto parts maker Denso Corp 6902.T fell 7.7 percent to 1,956 yen. Among banks, Mizuho Financial Group 8411.T was hit especially hard after Goldman Sachs cut its rating. It added it to its "conviction sell" list from "neutral", citing chances of higher credit costs and equity mark-to-market losses.
Canon slid 4 percent to 2,900 yen and Sony Corp 6758.T fell 7.4 percent to 2,060 yen.
But shares in FDK Corp 6955.T bucked the trend, surging 9.4 percent to 152 yen after Fujitsu Ltd 6702.T said it would lift its stake in the loss-making electronic parts maker to 64.4 percent from 39.6 percent. (Reporting by Elaine Lies; Editing by Edwina Gibbs)
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