Nikkei hits 16-month low on credit worries, yen

The Nikkei average tumbled to a 16-month low on Tuesday and the TOPIX to a two-year low, battered by a Wall Street slide on renewed credit worries and concerns about U.S. economic strength, along with a strong yen.

Banks such as Mizuho Financial Group suffered after Goldman Sachs downgraded Citigroup Inc to "sell" from "neutral", saying the largest U.S. bank may have to write off $15 billion over the next two quarters as mortgage losses reduce earnings.

The benchmark Nikkei ended morning trade at 14,756.67, down 1.9 percent or 285.89 points. It earlier slid to 14,751.27, its lowest point since July 24, 2006.

The broader TOPIX was down 2.3 percent at 1,422.93, after earlier touching 1,420.57, its lowest since October 2005.

Yen holds gains on deepening credit concerns

The yen held gains against higher-yielding currencies on Tuesday after more signs that financial institutions are suffering from turmoil in the U.S. subprime mortgage and credit markets kept investors cautious about risky carry trades.

The dollar hovered near an 18-month low against the Japanese currency, after Goldman Sachs & Co. on Monday downgraded Citigroup's stock to "sell" from neutral", and forecast more write-downs by the largest U.S. bank due to mortgage losses.

A 1.6 percent fall in the Nikkei stocks average, which followed a fall to three-month lows in their U.S. counterparts on Monday, also supported the yen as investors use stock movements as a barometer of risk appetite.

The downgrade in Citigroup, which Goldman said may have to write off $15 billion over the next two quarters, underlined the ongoing credit problems that are reverberating through the financial world, threatening to impact the broader U.S. economy and keeping intact speculation for lower U.S. interest rates.

"The yen strength trend is continuing," said Hideki Amikura, forex manager at Nomura Trust and Banking, citing the Citigroup downgrade as a big factor in the latest bout of yen buying.

"We're going to need some new factors to turn this trend around," he added.

The dollar was little changed at 109.75 yen after slipping as low as around 109.60 yen in early Tokyo trade, inching closer to 109.12 yen hit last week for the first time since May last year.

The dollar edged down to a 12-year low against the Swiss franc to 1.1145, according to electronic trading platform EBS. A fall under 1.1100 would mark a record low.

Both the yen and Swiss franc tend to gain when investors shed risk because the low-yielding currencies are often used to finance purchases of riskier, higher-yielding assets.

The euro was little changed around $1.4665, hovering in range of a record high of $1.4753 touched earlier in the month.

The single European currency was unchanged at 161.00 yen after sliding as low as around 160.75 yen.

High-yielding currencies like the Australian and New Zealand dollars extended losses, slipping to a one-week lows against the U.S. currency and the yen.

The Aussie slipped to around $0.8805 after falling around 1 percent on Monday, while falling 0.2 percent to 96.80 yen The New Zealand currency was down roughly 0.1 percent against the U.S. dollar and the yen.