Japanese stocks fell, driving the Nikkei 225 Stock Average to a near seven-week low, on concern a prolonged economic slump will erode capital at banks and cash flows at manufacturers. Sumitomo Mitsui Financial Group Inc., Japan’s third-largest listed bank, dropped 4.5 percent as speculation global banks need to bolster capital sent U.S. financial shares to an almost 14- year low yesterday. Mazda Motor Corp., Japan’s No. 4 carmaker, slid 3.8 percent after saying it’s seeking government help to pay salaries. Chugai Pharmaceutical Co. jumped 4.5 percent as investors sought companies whose earnings are shielded from the economic slowdown. The Nikkei 225 declined 73.08, or 0.9 percent, to 7,992.71 as of 12:41 p.m. in Tokyo, set for the lowest close since Dec. 5. The broader Topix index fell 10.86, or 1.4 percent, to 794.17, with two stocks falling for each that rose. “The deterioration of bank assets is deepening as the effect of the global economic slump spreads from securities to commercial real estate and credit-card loans,” said Hiroshi Morikawa, a senior strategist at Tokyo-based MU Investments Co., which manages about $14 billion. “Investors aren’t sure how much banks need to replenish their capital, so the situation looks like a bottomless pit.” The Nikkei lost a record 42 percent last year, pushing down two-thirds of its members below their net worth, as global financial firms posted more than $1 trillion in writedowns and credit losses and the world’s biggest economies slipped into recession. Japan’s slump will be “very severe” and may last for three years, Hiroshi Yoshikawa, head of the government committee that charts the economic cycle, said in an interview this week. That would mark the country’s longest downturn in the postwar era. Capital Concern Sumitomo Mitsui sank 4.5 percent to 3,370 yen, while market leader Mitsubishi UFJ Financial Group Inc. lost 2.6 percent to 489 yen. T&D Holdings Inc., Japan’s biggest listed life insurer, fell 5.8 percent to 2,855 yen, while rival Tokio Marine Holdings Inc. slid 4.9 percent to 2,160 yen. The insurers chopped their full-year earnings targets by more than 70 percent in November, in part because of wider writedowns on security holdings. Yesterday, U.S. financial shares plummeted on concern mounting losses will force companies to raise more capital. Bank of America Corp., which last week posted its first quarterly loss since 1991, dropped 29 percent after Friedman, Billings, Ramsey Group Inc. said the bank needs at least $80 billion to restore its capital. State Street Corp., the largest money manager for institutions, tumbled 59 percent after its unrealized losses almost doubled as of Dec. 31 from three months earlier. Government Aid “Asian banks have much fewer toxic assets, but the general slowdown in the economy will increase their nonperforming loans,” said Yoji Takeda, who manages about $1.1 billion at RBC Investment (Asia) Ltd. in Hong Kong. “We’re still in a financial crisis, so there is some event risk there.” Mazda slumped 3.8 percent to 154 yen, while bigger rival Nissan Motor Co. fell 5.2 percent to 310 yen. Mazda asked the government for financial assistance to pay salaries during production cuts in January, the company said today, confirming an earlier report in the Nikkei newspaper. Nissan will also seek aid, according to the report. Toyota Motor Corp., poised to become the world’s largest automaker after sales results today, slipped 3.6 percent to 2,990 yen. Chugai gained 4.5 percent to 1,636 yen, while Towa Pharmaceutical Co. jumped 7.1 percent to 3,950 yen. Astellas Pharma Inc. rose 2.5 percent to 3,250 yen. A gauge tracking drugmakers was the biggest winner among 33 industry groups on the Topix. “The defensive nature of drugmakers attracts investors,” MU’s Morikawa said. Nikkei futures expiring in March retreated 0.9 percent to 7,980 in Osaka and slumped 1 percent to 7,980 in Singapore.

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