Nikkei down as shippers sink, market wary on bailout

*Nikkei slips 0.9 percent, automakers drag

*Shippers sink after key freight index hits 20-mth low

*Worry about U.S. financial bailout sidelines investors (Adds stocks, details)

By Elaine Lies

TOKYO, Sept 25 (Reuters) - Japan's Nikkei share average lost 0.9 percent on Thursday as Mitsui O.S.K. Lines Ltd (9104.T: Quote, Profile, Research, Stock Buzz) and other shippers sank after a key freight index fell, while worry about the U.S. financial sector bailout weighed on the market.

While Congress was considering how and when to act about a proposed $700 billion bailout, U.S. markets were in turmoil. Investors stampeded into cash and safe-haven assets, and experts said banks were hoarding cash, fearful that if they loaned money to other banks it might not be repaid. [ID:nN24478809] Tokyo investors remained on the sidelines, keeping volume thin and making movements volatile after U.S. President George W. Bush warned in a speech of looming economic disaster if Congress failed to act swiftly. [ID:nN24444366].

"The big problem is that in many ways the market has already factored in the fact of the bailout so the issue now is how concrete it will be," said Norihiro Fujito, general manager of the investment research and information division at Mitsubishi UFJ Securities.

"With problems likely when they actually carry it out, expect volatile conditions to continue."

Automakers slid on growing worries about the U.S. economy, where car sales have fallen sharply, while other investors turned to defensive stocks such as pharmaceuticals in the face of rising global economic woe.

But the Nikkei regained some ground after falling as much as 2 percent, echoing its Wednesday flip into positive territory in the last moment of trade.

Market participants said fund managers appeared to be buying to improve the value of their portfolios ahead of the end of the April-September first half next week, a practice known as window dressing.

"There was really no reason for the Nikkei to rise yesterday afternoon or to pare its losses as much as it did this morning, aside from this," Fujito said. Wednesday was also the last day on which investors were able to buy many Japanese stocks and still receive dividends for the first half.

"At least part of today's slide.... was due to ex-dividend impact, so things aren't really as bad as they seem," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. The benchmark Nikkei .N225 shed 108.50 points to 12,006.53, while the broader Topix was down 1.2 percent to 1,153.95.

SHIPS, CARS

Shipping companies sank after the Baltic Exchange's chief sea freight index for global raw materials trade .BADI dropped more than 6 percent to a 20-month low on Wednesday, hurt by troubled financial markets, weaker commodity prices and concerns over Asian demand.

Mitsui O.S.K. Lines fell 6.3 percent to 1,010 yen and Kawasaki Kisen Kaisha (9107.T: Quote, Profile, Research, Stock Buzz) lost 5.6 percent to 722 yen. Nippon Yusen (9101.T: Quote, Profile, Research, Stock Buzz) skidded 5.7 percent to 758 yen.

Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) fell 3.8 percent to 3,300 yen, making it the biggest drag on the Nikkei 225 by volume weight. Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) slid 2.5 percent to 4,690 yen.

Pharmaceutical shares extended gains made a day earlier, with Takeda Pharmaceutical Co (4502.T: Quote, Profile, Research, Stock Buzz) up 0.7 percent to 5,440 yen and Eisai Co Ltd (4523.T: Quote, Profile, Research, Stock Buzz) edging 0.5 percent higher to 4,170 yen. Chugai Pharmaceutical Co Ltd (4519.T: Quote, Profile, Research, Stock Buzz) rose 2.2 percent to 1,706 yen.

Isetan Mitsukoshi Holdings (3099.T: Quote, Profile, Research, Stock Buzz), Japan's largest department store, gained 2.3 percent to 1,264 yen after saying it planned to close six stores in its first big restructuring since its creation in a merger earlier this year.

Trade was thin, with 1.6 billion shares changing hands on the Tokyo stock exchange's first section, compared to last week's daily average of 2.46 billion. Declining shares outnumbered advancing ones by more than two to one. (Reporting by Elaine Lies; Editing by Edwina Gibbs)