Tokyo's Nikkei average slid 3.1 percent on Friday on broad selling after General Motors

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warned of possible bankruptcy and as concerns intensified about the fragile health of the global financial sector.

Japan's Financial Services Agency plans to extend curbs on short-selling of stocks beyond the end of this month, two sources familiar with the matter said, but the news had no impact on the stock market, analysts said.

Market participants have said buying by what they believe to be public pension funds has been supporting the benchmark when it approaches the 26-year low of 6,994.90 hit in late October.

U.S. stocks slid on Thursday with the Dow and S&P falling to 12-year lows, with shares of Citigroup, once the world's largest bank by market value, trading below $1 for the first time.

In Tokyo, Monex Group Inc lost nearly 7 percent after a newspaper reported Citigroup plans to sell its 26 percent stake in the Japanese online broker as part of the struggling U.S. bank's efforts to raise cash.

Fuji Heavy Industries Ltd tumbled after the maker of Subaru brand cars said it has applied for a low-interest loan offered by the state-run Development Bank of Japan to finance its business.

"Financial fears have resurfaced both in America and Europe," said Takahiko Murai, general manager of equities at Nozomi Securities.

"Citi's stock price broke below $1, while UK institutions and others in Europe have lent money to peers in Eastern Europe where the economies are in extremely poor condition," he said.

The benchmark Nikkei was down 228.54 points at 7,204.95 at the midday break.

Buoyed by hopes for bigger economic stimulus plans in China, it had gained 2 percent the previous day, the first time it has risen for two straight days since late January.

The broader Topix declined 2.2 per cent to 725.10.

"The Nikkei hasn't gone below its October lows because what many believe to be public pension funds have bought to prop up stock prices before the fiscal year-end, but that will definitely wear off next month and Tokyo will move in tandem with the U.S. and European markets," said Murai.

Yoku Ihara, manager at Retela Crea Securities, said he was concerned about the progress of the U.S. economic stimulus plans.

"I'm worried about America and the place where we can place our hopes now is China," he said.

EXPORTERS, SHIPPER HURT

Monex tumbled 6.8 percent to 23,160 yen. Yumiko Iuchi, a spokeswoman at Citigroup's Japanese investment bank unit, Nikko Citigroup, declined to comment on the Yomiuri newspaper report.

Fuji Heavy sank 7.7 percent to 314 yen. Company spokesman Kenta Matsumoto said the company has applied for the loan but declined to provide further details. The Nikkei business daily reported earlier on Friday that the automaker has asked for 10 billion yen in loans.

Shipping firms such as Mitsui OSK , which had recently gained on hopes for economic stimulus in China, were among the biggest losers while exporters also tumbled.

Mitsui OSK dropped 7.8 percent to 463 yen, Kawasaki Kisen slid 6.5 percent to 288 yen and Nippon Yusen lost 7.2 percent to 376 yen.

Among exporters, Honda Motor skidded 4.7 percent to 2,155 yen and Toyota Motor Corp shed 2.7 percent to 2,905 yen. TDK Corp dropped 5.5 percent to 3,090 yen.

Banks fell after Wall Street stocks slid the previous day on concerns about the U.S. banking system as anxiety rose over whether Citigroup can be restored to health or whether it will have to be taken over by the government.

Mitsubishi UFJ Financial Group, Japan's top lender, shed 3.6 percent to 406 yen and No. 2 Mizuho Financial Group retreated 4.3 per cent to 177 yen.

Third-ranked Sumitomo Mitsui Financial Group fell 3.7 per cent to 2,845 yen.

Trade was moderate on the Tokyo exchange's first section, with 962 million shares changing hands, almost in line with last week's morning average. Declining stocks outpaced advancing ones by nearly 3 to 1.