3RD LD: Kamei hints FSA may tell banks to stop share sales+.

TOKYO, Nov. 27 Kyodo

(EDS: ADDING IMFORMATION AT 9TH-12TH PARAS)

Shizuka Kamei, policy chief of the ruling Liberal Democratic Party (LDP), said Monday the Financial Services Agency (FSA) may direct major banks to refrain from unloading cross-held shareholdings, in an effort to prop up sluggish share prices.

The banks' unloading of the shares ''could be dealt with by an administrative guidance of the FSA,'' Kamei told reporters.

He was speaking after attending a meeting at which senior officials from the LDP, the government and the Bank of Japan discussed the stock market weakness.

Kamei told reporters before the meeting that stock prices are falling ''due to banks' selfish behavior.''

''There is a need for the government to take some action. If there's any problem, we must endeavor to solve it.''

Later in the day, however, Vice Finance Minister Toshiro Muto cast doubt on whether the government can tell the banks to stop selling shares.

''It is up to the FSA to decide, but I think it is difficult to give such an administrative directive,'' he told a press conference.

He also said stock prices cannot be adjusted by government policies.

FSA Commissioner Masaharu Hino told a separate press conference that participation of individual investors in the market should be encouraged as a way to partly offset the sales by banks.

Hino said the current capital-gains tax format should be maintained to ensure participation by individual investors.

Under the capital gains tax format introduced in 1989, investors can either calculate and report capital gains themselves and pay a tax rate of 26%, or pay a 1.05% withholding tax when they sell shares, regardless of gains.

The second system is popular among investors because it is simpler and the tax rate is lower. The separate withholding tax was supposed to end in March 1999 as part of the government's tax-system reforms. However, it was extended for two years as a way of stimulating the economy.

Meanwhile, Kamei said the participants in the meeting did not discuss the so-called price-keeping operations by the government to prop up stock prices.

He said, however, that participants agreed that recent stock prices do not reflect the actual state of Japan's economy, which he said is gradually improving.

Kamei said he instructed the government to deal appropriately with stock sales by foreign investors -- who have recently turned net sellers of Japanese stocks -- and major Japanese banks.

Share prices on the Tokyo Stock Exchange advanced sharply Monday on expectations that the government will take measures to cope with the prolonged slump in the equity market.

The benchmark 225-issue Nikkei Stock Average surged 405.04 points to 14,720.39 on Monday, but it is still hovering at around this year's lowest level.