Sept. 16 (Bloomberg) -- Most Japanese stocks fell, led by banks, as concern policies of Yukio Hatoyama’s new government will deter the nation’s recovery overshadowed signs of improvement in the U.S. economy.

Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. lost at least 1.5 percent after the incoming financial services minister said he will consider allowing small companies to postpone repayment of bank loans for about three years. Sony Corp., which gets 23 percent of its sales from the U.S., added 2.3 percent after reports showed bigger-than- estimated growth in U.S. retail sales and New York manufacturing.

Twice as many shares declined as gained on the Topix index, which dipped 0.1 percent to close at 931.43 in Tokyo. The Nikkei 225 Stock Average gained 0.5 percent to 10,270.77. Hatoyama, who pledged to cut highway tolls and to hand out cash to families with children, was elected as the country’s 60th premier today.

“There is deep-rooted doubt among investors that simply giving away money will restore the economy,” said Yoshihiro Ito, senior strategist at Okasan Asset Management Co., which oversees the equivalent of $8.2 billion. People “are avoiding taking large positions” before a five-day holiday starting on Sept. 19.

The value of stocks traded in Tokyo has held below the 12- month average in all but one of the past 30 days as hazy prospects for new government policies deterred trading. Hatoyama replaced Taro Aso as Japan’s prime minister today after his Democratic Party of Japan last month won a national election by a landslide. The victory ended a half century of almost unbroken Liberal Democratic Party rule.

‘Anachronistic’ Proposal

Shizuka Kamei, who is taking over the Financial Services Agency, told reporters yesterday small businesses and financial companies are facing a severe situation and that it’s impossible to fix the economy without making sure the industry is sound.

“I’ll start discussing a loan moratorium of about three years for small- and medium-sized companies as soon as I take the post,” said Kamei.

Mitsubishi UFJ retreated 1.7 percent to 526 yen, while Mizuho fell 1.5 percent to 195 yen and was the most actively traded stock by value. Banks were the biggest drag on the Topix.

A loan moratorium “is as anachronistic as asking people to stop using electricity and use candles instead,” said Tsutomu Yamada, a market analyst at kabu.com Securities Co. in Tokyo. “If such a proposal is accepted, it means the financial industry will enter a more troubled era.”

Short Positions

The Nikkei climbed as much as 1.7 percent early after reports showed U.S. retail sales and a gauge of New York manufacturing rose more than economists had estimated.

Sony, the world’s second-biggest maker of consumer electronics, advanced 2.3 percent to 2,475 yen. Canon Inc., the world’s biggest manufacturer of office equipment, jumped 4.2 percent to 3,700 yen after Nomura lifted the stock to “buy” from “neutral,” saying its alliance with Hewlett-Packard Co. in office equipment has “substantially” reduced a risk for Canon’s medium-term growth.

“Overseas investors unwound their short positions in the morning and some orders were left to be executed in the afternoon,” said Kenichi Hirano, general manager at Tachibana Securities Co. “After buy orders ran out, the market lost steam.”

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

Last Updated: September 16, 2009 04:37 EDT