Nikkei ends at 16-month low on yen, U.S. economy

TOKYO, Nov 21 (Reuters) Japan's Nikkei average ended at a 16-month closing low on Wednesday, as a stronger yen and a weaker outlook for the U.S. economy depressed exporters such as Honda Motor Co Ltd The Tokyo market extended losses in the afternoon session after the dollar's sharp fall against the yen and losses in other Asian markets further dampened investor sentiment.

''It's unavoidable to see the market's fall today, since yesterday's gain was mostly on rumours of a possible Federal Reserve rate cut,'' said Kenichi Hirano, operating officer at Tachibana Securities.

''I see only selling, given the downward revision of the U.S.

economic outlook and the strong yen.'' The Federal Reserve said on Tuesday U.S. economic growth will slow in 2008 to between 1.8 percent and 2.5 percent, sharply down from the 2.5 percent to 2.75 percent forecast in June, before picking back up in 2009.

The dollar extended its fall in the afternoon, slipping as low as 108.84 yen at one point.

The Nikkei ended down 2.5 percent or 373.86 points at 14,837.66, its lowest close since July 24, 2006.

The broader TOPIX fell to a more than two-year low, down 2.1 percent at 1,438.72.

Trade was active, with 2.2 billion shares changing hands compared with the October daily average of 1.98 billion.

Decliners outnumbered advancers by nearly 3 to 1.

EXPORTERS HIT Exporters extended losses in tandem with the dollar's fall, with Honda down 4.5 percent at 3,620 yen and TDK Corp losing 3.4 percent to 7,450 yen. Canon Inc shed 1.8 percent to 5,390 yen.

Toyota Motor Corp slid to a 16-month low, down 2.8 percent at 5,940 yen.

''The dollar is on a declining trend. This is more than an unwinding of carry trades,'' said Masaki Iso, chief investment officer, Yasuda Asset Management. ''The dollar is being sold on pessimistic views about the U.S. economy. But if the yen's upward move is moderate, it should be positive for Japanese stocks, since for foreign investors the stronger yen would increase their attractiveness.'' One bright spot was Nippon Sheet Glass Co Ltd Its shares rose 4.2 percent to 593 yen after it said first-half operating profit grew more than threefold thanks to the addition of Britain's Pilkington, which it bought in June 2006.

Oil and gas developer INPEX Holdings Inc rose 3.6 percent to 1.15 million yen after oil prices matched an all-time high on Tuesday on the weak dollar and supply concerns heading into winter.

Mitsubishi Paper Mills Ltd gained 4.8 percent to 218 yen after a ratings upgrade by Nikko Citi to ''buy'' and an announcement on Tuesday that it had agreed with Oji Paper Co Ltd to a business and capital tie-up in which Mitsubishi will raise 1.77 billion yen ( million) by issuing new shares to Oji.

Shares of Katokichi Co rose 17.4 percent to 594 yen, adding to a 19 percent gain in the previous session after the Nikkei business daily reported on Tuesday that Japan Tobacco Inc and Nissin Food Products Co planned to team up to acquire the frozen-food company.

REUTERS BJR RN2055