Oct. 19 (Bloomberg) -- Japanese stocks fell, sending the Topix index to its worst weekly decline in two months. Canon Inc. led declines by exporters after the yen surged against the dollar to the strongest level in almost three weeks.

Canon fell to the lowest since Sept. 13. Mizuho Financial Group Inc. led losses by financial shares after Bank of America Corp. said yesterday about $4 billion in trading losses, defaults and writedowns caused third-quarter profit 32 percent, fueling concern the outlook for the world's largest economy is worsening.

``This is the first time in a while the yen has traded this high, and that's hurting the market,'' said Junichi Misawa, who oversees $655 million at STB Asset Management Co. in Tokyo. ``Of course there's still a lot of lingering uncertainty about the U.S. economy.''

The Nikkei 225 Stock Average fell 291.72, or 1.7 percent, to 16,814.37 at the close of trading in Tokyo. The broader Topix slumped 26.47, or 1.6 percent, to 1,591.28.

The Topix fell 4.1 percent this week, the worst performance since the five days ended August 17. The Nikkei lost 3 percent, its first drop in six weeks.

Acom Co. soared the most in eight years, leading gains by consumer lenders, after the company raised its forecast for profit from operations.

Canon, the world's No. 1 seller of digital cameras, tumbled 170 yen, or 2.8 percent, to 5,930. Nintendo Co., the maker of the Wii game console, slid 1,300 yen, or 1.9 percent, to 66,700 in Osaka. Toyota Motor Corp., the world's largest automaker by value, fell 100 yen, or 1.6 percent, to 6,250.

Bank of America

The yen recently traded at 114.89 against the dollar after climbing to as high as 114.84, the first time it traded below 115 since Oct. 1. Japan's currency changed hands at 116.56 versus the dollar at the close of trading yesterday in Tokyo. A stronger yen decreases the value of Japanese exporters' dollar- denominated sales when converted into the local currency.

Mizuho, the nation's second-biggest publicly traded bank, declined 14,000 yen, or 2.2 percent, to 616,000. Mitsubishi UFJ Financial Group Inc., the largest, slipped 13 yen, or 1.3 percent, to 1,027. Nomura Holdings Inc., Japan's biggest brokerage, slid 40 yen, or 2 percent, to 1,944.

Bank of America said yesterday net income dropped to $3.7 billion in the third quarter as the company set aside $2.03 billion in the quarter to cover bad loans amid the worst U.S. housing slump in 16 years. The company's shares fell 2.4 percent.

Stocks also dropped after the number of first-time claims for unemployment benefit in the U.S. increased by the most since February to 337,000.

Consumer Lenders

``The biggest factor confronting the market right now is the uncertain outlook for the U.S.,'' said Soichiro Monji, who helps oversee $47 billion at Daiwa SB Investments Ltd. in Tokyo.

Elsewhere, Bank of Japan governor Toshihiko Fukui said yesterday after meeting U.S. Federal Reserve Chairman Ben S. Bernanke in Washington the time it's taking for the U.S. housing market to recover from the slump is increasing uncertainty for financial markets.

Acom surged by its exchange-imposed daily limit of 400 yen, or 18 percent, to 2,640, gaining the most since September 1999. It was the biggest fluctuation among the 1,861 stocks in the Morgan Stanley Capital International World Index. Japan's second-largest consumer lender by market value reported on a preliminary basis that operating profit, or sales minus the cost of goods sold and administrative expenses, rose by 63 percent to 49.4 billion yen ($428.8 million) in the first half.

Other consumer finance companies advanced. Takefuji Corp., the third largest, climbed 400 yen, or 17 percent, to 2,700, the biggest jump since Nov. 24, 2000. Aiful Corp., the No. 4 by market value, rose 302 yen, or 15 percent, to 2,270.

Forecast Revision

Shares related to domestic infrastructure spending dropped after Dai-Dan Co., an electric systems company, lowered its profit forecast for the current year by three quarters. The stock dropped 76 yen, or 13 percent, to 505, the steepest decline since September 1990.

Comsys Holdings Corp., which builds telecommunications facilities, slumped 104 yen, or 8.1 percent, to 1,180, the biggest decliner in the MSCI World Index. Nikko Citigroup Ltd. cut its price estimate for the shares by 6.8 percent to 1,380, adding the stock is not attractively valued at the current level.

Sumitomo Osaka Cement Co. and Taiheiyo Cement Corp. tumbled after Mizuho cut its recommendation on both stocks, citing lower domestic spending. Sumitomo Osaka, the No. 3 maker of the building material fell 15 yen, or 5.5 percent, to 260. Taiheiyo, the biggest, lost 13 yen, or 3.5 percent, to 356.

Drugmaker Kyowa Hakko Kogyo Co. jumped 200 yen, or 17 percent, to 1,402, the biggest advance since Jan. 13, 2000. Kirin Holdings Co., Japan's biggest brewer, said it's in talks to acquire Kyowa Hakko which was valued at 480 billion yen ($4.2 billion) at yesterday's closing price. Kirin Holdings Co. advanced 19 yen, or 1.2 percent, to 1,586.

Nikkei futures expiring in December fell 1.8 percent to 16,820 in Osaka and declined 1.8 percent to 16,790 in Singapore.

Acom Co. (8572 JT)
Aiful Corp. (8515 JT)
Canon Inc. (7751 JT)
Comsys Holdings Corp. (1721 JT)
Dai-Dan Co. (1980 JO)
Kirin Holdings Co. (2503 JT)
Kyowa Hakko Kogyo Co. (4151 JT)
Mitsubishi UFJ Financial Group Inc. (8306 JT)
Mizuho Financial Group Inc. (8411 JT)
Nintendo Co. (7974 JO)
Nomura Holdings Inc. (8604 JT)
Sumitomo Osaka Cement Co. (5232 JT)
Taiheiyo Cement Corp. (5233 JT)
Takefuji Corp. (8564 JT)
Toyota Motor Corp. (7203 JT)

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

Last Updated: October 19, 2007 02:57 EDT