Nikkei down 0.4 pct, banks fall on economic concerns

(Updates to midmorning)

TOKYO, Aug 8 (Reuters) - Japan's Nikkei stock average fell 0.4 percent on Friday, with banks such as Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research, Stock Buzz) suffering sharp declines due to the bleak outlook for the domestic economy.

But Toyota Motor Co (7203.T: Quote, Profile, Research, Stock Buzz) rose 4.4 percent after the world's biggest automaker kept its forecasts unchanged despite posting a 28 percent drop in quarterly net profit on a strong yen and slumping U.S. sales. [ID:nT303458]

Tokyo cut its view on the economy on Thursday, dropping the word "recovery" in a key monthly report for the first time in nearly five years as raw material costs and a global slowdown push the world's No.2 economy towards a recession. [ID:nT277427]

"As the government report said, the Japanese economy has been deteriorating, and in such an environment investors cannot buy domestic demand-oriented stocks and banks," said Kenichi Hirano, operating officer at Tachibana Securities.

At 0059 GMT, the benchmark Nikkei .N225 was down 49.75 points at 13,075.24, while the broader Topix lost 0.9 percent to 1,248.08.

All of Japan's top three banks fell as deteriorating economic conditions raised concerns of a decline in demand for bank loans and increases in provisions against any loans souring.

Top lender Mitsubishi UFJ plunged 4.5 percent to 830 yen and No. 2 Mizuho Financial Group (8411.T: Quote, Profile, Research, Stock Buzz) fell 2.1 percent to 465,000 yen.

Toyota rose to 4,780 yen, making it one of the biggest positive contributors to the Nikkei as investors, who had been dumping its shares recently, decided that the bad news for the automaker has run its course for now.

"Toyota shares have already priced in very tough conditions at the automaker so they are up today," Tachibana's Hirano said. (Reporting by Taiga Uranaka; Editing by Hugh Lawson)