By Elaine Lies TOKYO, Oct 22 (Reuters) - Japan's Nikkei average slid 6.8 percent on Wednesday to its lowest close in a week, battered down as Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz) and other exporters fell after the yen rose against the euro and worries about the global economy deepened. Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research, Stock Buzz) and other big banks tumbled after the Nikkei business daily reported they will cut their earnings outlooks, while trading houses slid after oil fell on fears of declining demand. The yen rose to a four-year high against the euro as investors unwound risky carry trades that had used cheap funds in the low-yielding Japanese currency to buy higher-yielding assets, and as concern about the European economy grew . "It's not just the currency rate per se but what it suggests about the European economy, with (French President Nicholas) Sarkozy's proposals for regular summits about the economy indicating that things there are really bad," said Fujio Ando, senior managing director at Chibagin Asset Management. "There's fear that it's still going to get worse, and this of course will hit exporters." The benchmark Nikkei .N225 shed 631.56 points to finish at 8,674.69, its biggest one-day percentage loss since last Thursday's plunge of more than 11 percent -- which was in turn the biggest one-day loss since the 1987 stock market crash. The Nikkei has lost 23 percent this month but remains more than 500 points above the year's low of 8,115.41 hit on Oct 10. The broader Topix lost 7.1 percent to 889.23. Market players said that investors were dumping shares after the Nikkei had marked three days of gains that took it up 10 percent, with roughly two-thirds of that rise now erased. "Volatility has risen. It looks as if stocks will move up and down like an elevator for some time," said Takashi Ushio, head of investment strategy at Marusan Securities. BANKS BATTERED, WORRY RISES Mitsubishi UFJ's shares lost 8.8 percent after the Nikkei business daily said Japan's top lender would miss its net profit forecast for the six months ended Sept. 30 by about two-thirds due to slumping share prices and rising bad loan costs. Mizuho Financial Group (8411.T: Quote, Profile, Research, Stock Buzz) and Sumitomo Mitsui Financial Group (8316.T: Quote, Profile, Research, Stock Buzz) will also cut their earnings outlooks, the paper said. [ID:nT335752] Mizuho shed 8.5 percent to 334,000 yen and Sumitomo Mitsui Financial Group lost 8 percent to 505,000 yen. NEC Electronics Corp (6723.T: Quote, Profile, Research, Stock Buzz) plummeted 19.8 percent to 1,210 yen after the company slashed its annual operating profit forecast by 90 percent amid weak demand. [ID:nT339411] Earnings news was not all bad. KDDI Corp (9433.T: Quote, Profile, Research, Stock Buzz), Japan's second-biggest wireless carrier, announced after the close that it had posted a 27 percent gain in quarterly profit and was keeping its full-year forecast for 11 percent growth. But exporters slid after the euro extended losses against the yen, tumbling to 127.74 yen . The dollar slipped against the yen as well, falling to around 99.57 yen. Among exporters, Sony lost 9.3 percent to 2,450 yen and Canon Inc (7751.T: Quote, Profile, Research, Stock Buzz) fell 6.1 percent to 3,250 yen. Trading houses also fell sharply after crude oil futures CLc1 tumbled $3 a barrel to just above $69 on Wednesday on worries that output cuts will not be enough to offset weakening energy demand. Mitsubishi Corp (8058.T: Quote, Profile, Research, Stock Buzz), Japan's largest trading house, lost 8.9 percent to 1,684 yen and Itochu Corp (8001.T: Quote, Profile, Research, Stock Buzz) fell 11.2 percent to 484 yen. Trade was moderate on the Tokyo exchange's first section, with 2.2 billion shares changing hands, compared with last week's daily average of 2.4 billion. Declining stocks outpaced advancing ones by more than 21 to 1. (Reporting by Elaine Lies; Editing by Edwina Gibbs)

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