* Nikkei hits 4-mth low, in sight of 26-year low
* Topix touches 25-year low
* Banks down on worry over U.S. financial system
* Traders slide after oil tumble
* China-linked shares rise on hopes for economy plan
(Adds stocks, details)
By Elaine Lies
TOKYO, March 3 (Reuters) - Japan's Nikkei average touched a
four-month low on Tuesday then pared losses to 1 percent, with
banks slipping on worries about the U.S. financial system after
insurer AIG posted huge losses.
Trading houses also lost ground after oil tumbled 10 percent
on Monday, but China-linked shares such as Hitachi Construction
<6305.T> rose on hopes of a possible new stimulus plan emerging
from a session of China's parliament this week.
U.S. stocks slid to 12-year lows on Monday as embattled
insurer AIG <AIG.N> posted a record $61.7 billion loss, the
biggest in U.S. corporate history, and received another
government bailout. [] []
"The United States is currently going through a stress test
of its financial system," said Takashi Ushio, head of the
investment strategy division at Marusan Securities.
"The government can keep bailing them out, but how much money
can they spend?"
The benchmark Nikkei <> began the morning weak and fell
as far as 7,088.47 within the first hour of trade -- a level
unseen since a 26-year low of 6,994.90 hit last Oct. 28 and less
than 100 points away from it.
It finished the morning down 75.26 points at 7,204.89.
The broader Topix <> lost 1.3 percent to 725.02 after
briefly hitting a 25-year low.
"U.S. stocks aren't going to stop falling without some kind
of message from the government, along with some kind of fresh
policy package, whether stimulus or financial," said Noritsugu
Hirakawa, a strategist at Okasan Securities.
"Here in Japan, stocks are getting some support from hopes
for a government stock-buying plan or some fresh economic
stimulus, and there's also likely to be buying at the lows by
public pension funds."
Japan's government said last week it was looking at ways to
support the stock market, which could include setting up a
share-buying agency as happened in the mid-1960s.
SUPPORTED BY HOPE
Finance Minister Kaoru Yosano said on Tuesday the government
would use some of Japan's large foreign exchange reserves to ease
a squeeze in corporate finance, as the annual balance date looms
for many Japanese companies. []
Market players said this may have provided some support but
otherwise remained sceptical.
"Unless markets overseas stop falling there's nothing we can
do, no matter how hard we try," said Yutaka Miura, a senior
technical analyst at Shinko Securities.
"It may limit the scale of the losses, but that's all."
Banks fell, with Mizuho Financial Group Inc <8411.T> down 1.7
percent at 178 yen and Mitsubishi UFJ Financial Group <8306.T>
down 1.7 percent at 416 yen. Sumitomo Mitsui Financial Group
<8316.T> lost 1.2 percent to 2,955 yen.
More badly hit were trading houses after oil slipped still
further following Monday's 10 percent slide.
Mitsubishi Corp <8058.T>, Japan's largest trading house, lost
2.8 percent to 1,142 yen and Marubeni Corp <8002.T> fell 5
percent to 283 yen. Oil and gas field developer Inpex <1605.T>
fell 4.5 percent to 597,000 yen.
China-linked shares bucked the trend, though, on hopes that
some new economic stimulus could result when China's parliament
session opens later this week.
Some investors were also taking encouragement from a Chinese
business survey released on Monday that tentatively showed a
sharp downturn in manufacturing there may be nearing a bottom.
[]
Hitachi Construction rose 3.1 percent to 1,104 yen and Kubota
Corp <6326.T> was up 1.5 percent at 466 yen. Komatsu <6301.T>,
the world's No.2 maker of earth-moving equipment, edged down 0.1
percent to 981 yen but still outperformed the broader market.
Trade was moderate on the Tokyo exchange's first section,
with 924 million shares changing hands, compared with last
week's morning average of 967 million.
Declining stocks outpaced advancing ones by nearly 4 to 1.
(Editing by Michael Watson)
