5TH LD: Gov't to ask banks to halt stock sales+.

TOKYO, Nov. 28 Kyodo

(EDS: CLARIFYING 9TH PARA)

Japan's top banking regulator said Tuesday the government will request financial institutions limit their burgeoning sales of shares they have in other companies.

Hideyuki Aizawa, head of the Financial Reconstruction Commission, told reporters, ''We cannot leave the situation as it is, because stock prices have become too low.''

Aizawa made the comment after briefing Prime Minister Yoshiro Mori on his agency's willingness to ask for financial institutions' cooperation in this regard. ''Prime Minister Mori has asked me to respond to the situation in a resolute manner.''

Prior to the meeting with Mori, Aizawa discussed the situation with Shizuka Kamei, chairman of the Policy Research Council of the ruling Liberal Democratic Party (LDP), who the previous day said the government should direct banks to stop selling cross-held shares to halt the stock market slide.

The two agreed they will have to plead with banks to stop the share sales, now that it no longer possible to force banks to do so, a practice once known as ''administrative guidance,'' a kind of arm twisting, officials said.

Japanese banks have mammoth amounts of shares in other companies -- many of them borrowers that have large amounts of shares in their creditor banks.

But the banks have been discharging huge amounts of these cross-held shares, as the government is to mandate that they book unrealized losses on shares on their income statements from the March 31 book-closing of fiscal 2000 -- an accounting change that will slash their profitability and capital-adequacy ratios.

Japan's 16 major banks sold a total of 1.5 trillion yen in shares -- computed in terms of their original purchase prices -- in the six months to Sept. 30, in order to help write off 1.46 trillion yen in bad loans.

Although banks used to unload cross-held shares to dress up their financial results and then buy them back after closing their books, a growing number of banks have opted not to buy back unloaded shares.

A top official at a major commercial bank said, ''We have been troubled because the unloading of cross-held shares has increased downward pressure on share prices, thereby reducing banks' latent gains on stockholdings.''

The 225-issue Nikkei Average ended at 14,658.87 points Tuesday, down more than 25% from 20,337.32 on March 31 this year.

Aizawa said, ''It is not an administrative order, but we hope financial institutions will understand what the government and the ruling parties are thinking.''

''There is no need to scramble to dump share holdings at the moment when share prices are at a low level like this, so we want financial institutions to respond to the situation while monitoring the state of the bourse,'' he said.

But there was some bickering on this point among top government leaders and bureaucrats.

Economic Planning Agency Director General Taichi Sakaiya told reporters the government should not intervene in the stock market, saying a better way to revive the bourse would be to improve the investment environment.

Chief Cabinet Secretary Yasuo Fukuda also warned the government against interfering into the market, saying, ''The most appropriate measure to deal with sluggish stock prices is to achieve a full economic recovery by implementing a solid economic and fiscal policy.''

An official at the Financial Services Agency said, ''It is the trend of our age to wind up cross-holdings.''

But Finance Minister Kiichi Miyazawa, asked about Kamei's remarks, said, ''It is natural for a policy chief of the ruling bloc to be concerned'' over sluggish stock prices.

International Trade and Industry Minister Takeo Hiranuma said, ''Weak stock prices will have a huge negative impact on the Japanese economy...The party's judgment was right about bringing stock prices back to stability and preventing them from dampening the budding economic recovery.''