TOKYO (Reuters) - Japan's Nikkei stock average fell 2.4 percent on Thursday and the broad-based Topix index slid to a 25-year low, as exporters were hurt by a stronger yen and insurers were hit by a news of a planned merger in the sector. NipponKoa Insurance (8754.T), Japan's No.5 non-life insurer, closed 10 percent lower after an industry source said it would merge with third-ranked Sompo Japan (8755.T). Banks gave up some of their strong gains made the previous day, although Wall Street rose for a second day after JP Morgan Chase's (JPM.N) chief executive said his bank was profitable in January and February, echoing comments by Citigroup (C.N). "If there's any kind of positive factor the market seizes on it with short-covering, the way we saw yesterday," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management. "But outside of pension funds there aren't really a lot of buyers at the low end and foreigners are still steadily selling. The Topix hitting a 25-year low just shows that the overall trend still isn't that positive." The benchmark Nikkei .N225 shed 177.87 points in moderate trade to 7,198.25, eating away at Wednesday's 4.6 percent gain -- the biggest one-day gain in six weeks. The Topix finished down 3 percent at 700.93, its lowest close since December 1983. Elpida Memory Inc (6665.T) tumbled 19 percent after its Taiwanese production partner Powerchip (5346.TWO) said it was not expecting significant government help to consolidate local DRAM makers. Taiwan is setting up a new company to pull together struggling DRAM makers and plans to bring in technology from Elpida or U.S.-based Micron (MU.N). The market largely shrugged off data showing Japan's economy shrank a slightly revised 3.2 percent in the final quarter of last year. It confirmed the sharpest contraction since the oil crisis in 1974 and economists warn of further contractions in the next two quarters. YEN ADVANCE HITS EXPORTERS News of a planned NipponKoa-Sompo Japan deal, the second such in less than two months in the country's slumping insurance industry, dragged on the insurance sector. "The merger report is not something that investors particularly liked. The deal is aimed at survival in a shrinking market, as opposed to forward-looking mergers and acquisitions such as those taking place overseas or in growth areas," said Fumiyuki Nakanishi, a manager at SMBC Friend Securities. Insurers fell broadly, with NipponKoa Insurance tumbling 10.1 percent to 597 yen, while shares of Sompo Japan gained 2.6 percent to 473 yen. Fuji Fire and Marine Insurance (8763.T) slipped 5.4 percent to 53 yen and Aioi Insurance (8761.T) fell 6.8 percent to 301 yen. Nissay Dowa General Insurance (8759.T) shed 5.3 percent to 338 yen. The dollar lost over 1 percent against the yen after falling below some short-term chart levels, though it later pared its losses to fall 0.9 percent. Investors worry about a stronger yen because it eats into exporters' profits when repatriated, and exporters such as Sony were dragging the Nikkei lower.

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