apan's Nikkei average fell 1 percent on Wednesday after earlier hitting a two-month low as deepening woes in the global financial system hurt bank shares, while Toyota Motor and other exporters slid on a firmer yen. But the benchmark trimmed some of its morning losses as investors scooped up beaten-down stocks after the index broke below the 8,000 mark, and as the yen reversed some of its gains against the dollar, market players said. Financial worries continued to weigh on investor confidence in Japan after State Street Corp spooked Wall Street on Tuesday by saying it could need to raise capital and reported a 71 percent drop in fourth-quarter profit. The grim news came a day after Royal Bank of Scotland Group Plc posted the biggest loss in British corporate history. "We undoubtedly experienced a small surprise as those names such as State Street were new. But specific measures by governments and central banks to salvage the financial system had mitigated extreme fears and that framework won't change," said Junichi Misawa, a senior fund manager at STB Asset Management. The benchmark Nikkei shed 83.89 points to 7,981.90 after earlier falling to 7,829.30, its lowest since Nov. 21. The broader Topix declined 1.4 percent to 793.96. The dollar was up 0.2 percent at 89.98 yen. Investors worry over a strong yen as it curbs exporters' overseas profits when repatriated. Disappointment with U.S. President Barack Obama's inauguration speech, which laid out few new details on how his administration will tackle the banking crisis and flagging economy, helped push stocks lower on Wall Street. "People still have expectations for his economic policies, but we know nothing concrete about them, so the market has no choice but to focus on the real economy and earnings," said Yutaka Miura, chief technical analyst at Shinko Securities. Among big movers, shares of Elpida Memory jumped 6.4 percent to 567 yen after the company said it was in talks with Taiwanese DRAM makers including Powerchip, ProMOS Technologies and Rexchip, on a possible merger as well as other options. BANKS HIT, TECH TROUBLES Japan's top bank Mitsubishi UFJ Financial Group lost 3.4 percent to 485 yen and second-ranked Mizuho Financial Group fell 3.1 percent to 221 yen. No.3 Sumitomo Mitsui Financial Group shed 5.1 percent to 3,350 yen. The banking subindex lost 2.7 percent but was off earlier lows. Automakers fell amid slumping demand as consumers cut back spending in the face of recession. Toyota, which on Tuesday said that the founder's grandson, Akio Toyoda, would head the firm, lost 3.2 percent to 3,000 yen. Nissan Motor Co sank 4.9 percent to 311 yen and Honda Motor Co fell 0.2 percent to 2,125 yen. Isuzu Motors Ltd skidded 5.9 percent to 111 yen after Credit Suisse downgraded the automaker's rating to "underperform" from "neutral" and cut its target price to 100 yen from 170 yen. Sony Corp shed 1.2 percent to 2,000 yen after the Financial Times reported that it will announce details this week of a restructuring plan outlined last month. The plan called for curbing investment, closing plants and cutting 16,000 jobs to save $1.1 billion a year in costs. Other tech shares extended recent losses, with Kyocera Corp down 1.6 percent at 6,000 yen and TDK Corp declining 1.8 percent to 3,320 yen. (Reporting by Aiko Hayashi; Additional reporting by Elaine Lies; Editing by Kim Coghill) ((aiko.hayashi@thomsonreuters.com; Reuters Messaging: aiko.hayashi.reuters.com@reuters.net; +81 3 6441 1802)) Keywords: MARKETS JAPAN STOCKS Reuters Terminal users can see other related news and rates by double-clicking on: All Nikkei indices All shares listed on Nikkei-225 N225 index TOPIX index Nikkei Japan 1000 TOPIX sector data Nikkei 300 index TOPIX futures data Osaka N225 data Chicago N225 data Top 30 by volume Top 30 by value Total volume Total value 1st section sector RICs All TSE weighted avg Top 30 gainers by pct Top 30 losers by pct Top 30 net gainers Top 30 net losers Active Japanese stocks Japan economic indicators ASIA-PACIFIC STOCK MARKETS: Pan-Asia Japan S.Korea S.E. Asia Hong Kong Taiwan Australia/NZ India China OTHER MARKETS: Wall Street Gold Currency Eurostocks Oil JP bonds ADR Report LME metals US bonds Stocks News US Stocks News Europe DIARIES & DATA: IPO diary & data Asia earnings diary U.S. earnings diary European diary Japan diary Wall Street Week Ahead Eurostocks Week Ahead TOP NEWS: For top Asian company news: Top News Japan U.S. company news Europe company news Forex news Global Economy news All Equity news Tech, Media, Telecoms Banking news Politics/General news Asia Macro data A multimedia version of Reuters Top News is available at: http://topnews.session.rservices.com LIVE PRICES & DATA: World stocks Currencies Dow Jones/NASDAQ Debt FTSE 100 LME price overview Yen/dollar

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