By Masaki Kondo Nov. 18 (Bloomberg) -- Japan's stocks fell, breaking a two- day gain, as concern developers earnings will weaken overshadowed valuations near the cheapest on record. Mitsubishi Estate Co., the nation's No. 2 developer, sank 8.3 percent to a three-year low on speculation profits will fall as property demand slows and banks reduce lending. Sony Financial Holdings Inc., operator of Japan's fifth-largest insurer by value, dropped 9.2 percent after first-half earnings fell by more than a quarter. Oji Paper Co., the nation's biggest user of high-sulfur fuel oil, surged 6.9 percent after crude fell to a 21-month low. The Nikkei 225 Stock Average lost 194.17, or 2.3 percent, to close at 8,328.41 in Tokyo. The broader Topix index slid 15.05, or 1.8 percent, to 835.44, with 22 of its 33 industry groups dropping. The value of stocks traded in Tokyo sank to the lowest since Sept. 1 and was a third lower than the average this year. ``Developers are being squeezed by tight cash flows,'' said Yoshinori Nagano, a Tokyo-based senior strategist at Daiwa Asset Management Co., which manages about $96 billion. ``Their situation won't improve as long as banks are suffering from declining lending demand and swelling losses on their assets.'' Japan's three biggest banks, including Mitsubishi UFJ Financial Group Inc., cut by more than half their full-year earnings forecasts in the past month as costs rose to dispose of bad loans. Tighter lending from banks forced Dix Kuroki Co. to file for bankruptcy last week, making it the 21st listed Japanese company in the property sector to fail this year. Figures yesterday showed Japan slid into its first recession since 2001 as overseas demand faltered, prompting companies to cut back investment. Economic and Fiscal Policy Minister Kaoru Yosano today said he isn't confident at all the nation's economy will expand next fiscal year. Nikkei futures expiring in December retreated 2.1 percent to 8,310 in Osaka and declined 1.5 percent to 8,325 in Singapore. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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