Nov. 2 (Bloomberg) -- Japan's Topix index fell by the most in six weeks. Mitsubishi UFJ Financial Group Inc. led the decline on speculation Citigroup Inc. may be short of capital, renewing concern losses from U.S. subprime mortgages will reduce profits.

A measure of banks was the worst-performing group among the 33 industries in the index. Stocks extended their drop in the afternoon after the Wall Street Journal reported Merrill Lynch & Co. may have attempted to delay recognizing losses on mortgage- backed securities.

Honda Motor Co. led exporters lower after U.S. consumer spending rose less than forecast and manufacturing slowed more than estimated. In the U.S. the Standard & Poor's 500 Index slumped 2.6 percent yesterday, erasing about $369 billion of market value. Citigroup led declines by financial companies, plunging the most in five years.

``It's not just Citigroup, but a new sense that this subprime investment problem is going to linger with financial companies for a while,'' said Yoshinori Nagano, who helps oversee about $70 billion at Daiwa Asset Management Co. in Tokyo. ``There were expectations the U.S. would improve, but now those predictions are being pushed further into the future.''

The Nikkei 225 Stock Average slumped 352.92, or 2.1 percent, to 16,517.48 at the close in Tokyo. The broader Topix index dropped 35.61, or 2.2 percent, to 1,600.17, its biggest slide since Sept. 18. For the week, the Nikkei gained 0.1 percent, while the Topix jumped 1.7 percent.

Mitsubishi UFJ, Japan's largest bank by market value, slid 67 yen, or 6 percent, to 1,052. Nomura Holdings Inc., the nation's biggest brokerage, fell 92 yen, or 4.4 percent, to 1,993. Mizuho Financial Group Inc., the No. 2 bank by market value, shed 37,000 yen, or 5.8 percent, to 607,000. The Topix Banks Index lost 4.9 percent, its biggest drop since Sept. 18.

Analyst Downgrades

Analysts at CIBC World Markets said investors should sell shares of Citigroup, the largest U.S. bank, because the company may not be able to pay its dividend unless it liquidates assets. Morgan Stanley and Credit Suisse Group also cut their ratings on the stock. The downgrades sent Citigroup's shares tumbling 6.9 percent in composite trading, its worst performance since September 2002.

Merrill Lynch reached agreements with hedge funds that may have been intended to postpone the effect of losses linked to risky mortgage-backed securities, the Wall Street Journal reported, citing people close to the matter. A Merrill spokeswoman told the newspaper the company doesn't comment on specific transactions and that it is confident in the appropriateness of its valuations, according to the report.

Mortgage defaults by people with poor credit histories triggered a worldwide rout in debt and stock markets in July and August, spurring losses for investment banks and sending the U.S. housing market deeper into recession.

Konica Minolta, Glory

Honda, which makes more than half its profit in North America, fell 170 yen, or 3.9 percent, to 4,210. Olympus Corp., the world's biggest maker of endoscopes, tumbled 200 yen, or 4.2 percent, to 4,590. Nissan Motor Co., Japan's third-largest automaker, slid 80 yen, or 5.8 percent, to 1,301.

U.S. consumer spending rose 0.3 percent in September, lower than the 0.4 percent increase forecast by economists. The Institute for Supply Management's factory index fell to 50.9 in October, the lowest in seven months, and a greater decline than had been estimated.

``Citigroup's plunge, prompted by the analyst rating cuts, is bad news for lenders here even though they don't have the same degree of subprime exposure,'' said Soichiro Monji, who helps oversee $47 billion at Daiwa SB Investments Ltd. in Tokyo. ``Automakers and electronics companies that rely on the U.S. market are tough to buy today considering the drop in manufacturing activity.''

Fuji Television

Yamada Denki Co., Japan's biggest electronics retailer, jumped 350 yen, or 2.9 percent, to 12,440. Goldman, Sachs & Co. boosted its rating on the shares to ``buy'' from ``neutral.'' The company said it may increase its stake in fellow retailer Best Denki Co. to around 40 percent from 7.71 percent.

Konica Minolta Holdings Inc., the world's No. 2 maker of film used in liquid-crystal displays, surged 120 yen, or 5.9 percent, to 2,160 after the company boosted its full-year profit forecast and annual dividend by half.

Fuji Television Network Inc. plunged 24,000 yen, or 10 percent, to 210,000, the steepest decline since January 2004. Japan's biggest broadcaster by revenue said yesterday that first- half profit dropped by more than the company had expected due to the costs of building new studios. That was the second-largest percentage move among 1,854 stocks globally in the Morgan Stanley Capital International World Index.

Brother Industries Ltd. climbed 177 yen, or 11 percent, to 1,747. The office equipment maker raised its full-year net income forecast 4.2 percent to 25 billion yen and boosted its planned full-year dividend to 22 yen from 20 yen.

Nikkei futures expiring in December lost 2.5 percent to 16,490 in Osaka and fell 2.7 percent to 16,465 in Singapore.

Brother Industries Ltd. (6448 JT)
Fuji Television Network Inc. (4676 JT)
Honda Motor Co. (7267 JT)
Konica Minolta Holdings Inc. (4902 JT)
Mitsubishi UFJ Financial Group Inc. (8306 JT)
Mizuho Financial Group Inc. (8411 JT)
Nissan Motor Co. (7201 JT)
Nomura Holdings Inc. (8604 JT)
Olympus Corp. (7733 JT)
Yamada Denki Co. (9831 JT)

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

Last Updated: November 2, 2007 04:41 EDT