Nikkei falls 2.5% to 3-mth closing low as banks drag

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By Aiko Hayashi

TOKYO, July 8 (Reuters) - The Nikkei stock average slid 2.5 percent on Tuesday to its lowest close in nearly three months, dragged down by financials such as top lender Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research) amid renewed credit fears.

The slide came just a day after the benchmark snapped a 12-day losing streak, in which it had lost 8.4 percent and marked its longest losing run since a 15-day stretch in 1954.

Aeon Co Ltd (8267.T: Quote, Profile, Research), Japan's No.2 retailer, skidded 5.4 percent to end at 1,234 yen a few minutes after its first-quarter earnings results. Retailers are facing a tough market, as rising prices of fuel and food have forced consumers to cut spending on other items.

Soichiro Monji, chief strategist of the equity management department at Daiwa SB Investments, said the Japanese market extended losses in the afternoon following sharp drops in other Asian markets, with most of them hit by U.S. financial worries.

"The focus of the Japanese market is shifting to potential further losses or capital increases by financial institutions as we get closer to their earnings announcements in the United States," Monji said.

"During the Nikkei's 12-day losing streak, investors were more worried about high oil prices and the economic outlook than financial problems," he said.

U.S. bank stocks plummeted to their lowest level in a decade after Lehman Brothers estimated that a proposed accounting rule would force Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research), the largest providers of funding for U.S. home mortgages, to raise as much as $75 billion between them. [.N]