Nov. 26 (Bloomberg) -- Japan’s stocks slumped as concern falling home prices will curb U.S. spending overshadowed a Federal Reserve plan to commit an additional $800 billion to unfreeze credit markets.

Toyota Motor Corp. slid 4.6 percent after slowing sales in the U.S. market prompted Fitch Ratings to cut its credit rating on the carmaker for the first time in 10 years. Funai Electric Co., which gets about 70 percent of its sales from North America, lost 6.3 percent after a record drop in home sales prices eroded the borrowing and spending power of U.S. consumers. Sumitomo Trust & Banking Co. sank 4.8 percent after the bank said it will sell shares to boost capital.

The Nikkei 225 Stock Average lost 110.71, or 1.3 percent, to close at 8,213.22 in Tokyo, snapping a two-day, 8.1 percent gain. The broader Topix index fell 14.36, or 1.7 percent, to 817.22. Almost three stocks dropped for each that rose and the value traded in Tokyo fell 23 percent from the previous day to the lowest level since a half-day session on Dec. 28.

“U.S. house prices won’t bottom out until the latter half of next year or 2010,” said Hideyuki Ookoshi, who helps oversee about $365 million at Chiba-Gin Asset Management Co. “I’m still wary of the market outlook, so I’m increasing my cash position instead of tinkering around with stockholdings.”

Three-quarters of stocks on the Topix trade at below their book values, and 30 percent have lost more than half their value this year. The collapse of the U.S. housing market has cost financial firms almost $1 trillion in losses and writedowns, pulling the global economy into recession as banks hoarded cash and consumers reduced spending.

Home Prices

The S&P/Case-Shiller home-price index tumbled 17.4 percent in September from a year earlier, the fastest pace on record, as rising foreclosures in the U.S. pushed down property values.

To free up credit for homebuyers, the Fed will purchase as much as $600 billion of debt issued or backed by government- chartered housing-finance companies, the central bank said yesterday. It will also establish a $200 billion program to shore up consumer and small-business loans.

Toyota declined 4.6 percent to 2,985 yen, breaking a two- day winning streak. Fitch today reduced its credit rating on the carmaker to AA from AAA, saying Toyota is “suffering severely” from a slump in the global car market. Mazda Motor Corp. dived 6.4 percent to 160 yen after saying it will halt production at two Japanese plants for two days next month on lower demand.

Isuzu Motors Ltd., Japan’s largest maker of light-duty trucks, plummeted 7.9 percent to 117 yen, making it the Nikkei’s worst performer. Automakers were the biggest contributors to the Topix’s slump.

New Shares

Funai, which makes Sylvania and Emerson products, fell 6.3 percent to 1,340 yen in Osaka trading. Electronics maker Pioneer Corp. sank 7.1 percent to 209 yen, the lowest since at least September 1974 after UBS AG cut its share price estimate by 38 percent to 250 yen.

Sumitomo Trust, Japan’s fifth-largest lender, retreated 4.8 percent to 399 yen, after saying today it plans to sell “tens of billions” of yen in preferred shares. It joins the nation’s three biggest banks, including leader Mitsubishi UFJ Financial Group Inc., in seeking to raise more than $17 billion in capital as a 45 percent drop in the Topix this year eroded the value of their stockholdings.

High Beta

A gauge tracking insurers rallied the most among 33 industry groups on the Topix after Merrill Lynch & Co. said last week’s 27 percent drop was excessive.

Tokio Marine Holdings Inc., Japan’s biggest listed insurer, surged 7.1 percent to 2,275 yen, while Sompo Japan Insurance Inc. soared 7.1 percent to 607 yen. The two companies led gains on the Nikkei. Japan’s listed insurers collectively had a beta of 1.37 over the past three months. A beta of more than 1 indicates greater volatility than the index to which a stock is benchmarked.

“If investors support the view the stock market will enter an uptrend soon, they can’t miss out on insurance companies because their beta is high,” said Takashi Miyazaki, who helps oversee $61 billion at Mitsubishi UFJ Asset Management Co. in Tokyo.

The Nikkei and Topix briefly pared losses in the afternoon session. The Standard & Poor’s 500 Index swung between gains and losses more than 20 times in New York yesterday.

“Investor sentiment is drifting between optimism about U.S. policies and pessimism about the market outlook,” Hiroichi Nishi, a Tokyo-based equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television.

Nikkei futures expiring in December retreated 2.4 percent to 8,140 in Osaka and slumped 2 percent to 8,160 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

Last Updated: November 26, 2008 03:15 EST