Nikkei flat as exporters rebound, banks fall

TOKYO, Mar 16 (Reuters) The Nikkei average was little changed on Friday as Canon Inc. and other exporters regained ground on the dollar's bounce above 117 yen, while TDK Corp.

jumped after it said it would take over the hard disk drive business of Alps Electric Co.

But bank shares took a hit, with share prices in Japan's top three financial groups -- Mitsubishi UFJ Financial Group Inc. T> , Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. -- falling to their lowest for the year amid caution about their earnings.

Kenji Kobata, managing director in the research department of Ace Securities, said banks have had difficulty raising lending rates to corporations, despite the Bank of Japan's interest rate hike last month, as demand for loans from companies remains low.

''Investors are dumping bank shares as lending margins of Japanese banks have not improved as much as they had earlier expected,'' he said.

Kobata said a sell-off in U.S. bank shares due to problems in the subprime mortgage sector also induced selling of Japanese banks. The subprime mortgage sector serves borrowers with poor credit histories and charges higher interest rates.

Mizuho shares were also pressured by news that French investment bank Calyon on Thursday sued Mizuho's subsidiaries, alleging that an ''illicit scheme'' led to the mass resignation of Calyon's Cash CDO personnel.

The Nikkei was down 15.13 points or 0.09 percent at 16,845.26 at 0526 GMT. The broad TOPIX index fell 0.54 percent to 1,684.98.

Haruo Otsuka, chief fund manager of the investment management department at Toyota Asset Management, said he was concerned about the large falls in bank shares as he saw no specific reason to actively sell them at the moment.

''The correction phase in the market could be prolonged if investors are actually selling bank stocks on worries that excess liquidity might be shrinking,'' he said. ''What I fear is that the markets have the potential to turn speculation into reality.'' TDK gained 5.8 percent to 10,040 yen, becoming the largest contributor to the Nikkei's earlier rise. The electronics parts maker said on Thursday it would take over the hard disk drive (HDD) head business of Alps Electric Co., boosting its share of the fast-growing market.

Alps Electric shares climbed 5.3 percent to 1,363 yen.

''Investors expect TDK to boost its profit margins through this merger as TDK, which is already a leading company, can beef up its expertise,'' said Toyota Asset's Otsuka.

Nikko Cordial Corp., was up 0.1 percent at 1,687 yen after sources said Mizuho Financial Group, Japan's No.2 bank, would tender its 4.8 percent stake in Nikko Cordial to Citigroup REUTERS CS KP1141