(Updates to midafternoon)
TOKYO, Dec 4 (Reuters) - The Nikkei average fell 1.5 percent on Thursday as profit concerns amid the global economic downturn hit exporters such as Honda Motor Co, with merger news from Nippon Oil Corp failing to provide support.
Investors were also spooked by a Bloomberg report that General Motors and Chrysler LLC are considering accepting a pre-arranged bankruptcy plan in exchange for a U.S. government bailout, market analysts said.
A stronger yen and a fall in U.S. stock futures helped push the Nikkei lower.
Panasonic Corp slid after the Nikkei business daily said the world's biggest maker of plasma TVs has raised its buyout offer for Sanyo Electric by 10 yen to 130 yen per share in the hope of closing a deal this week.
But Japan's top refiner Nippon Oil Corp and sixth-ranked Nippon Mining Holdings Inc jumped after saying they aim to merge next October to better compete in the global oil market.
"Everyone is taking a wait-and-see stance, with investors who wanted to sell already having sold stocks and bargain hunters having bought on the dip," said Takashi Kamiya, chief economist at T & D Asset Management.
"It's hard to predict where the market will go, though stocks are valued cheaply, because the deteriorating economy has been already factored in and we don't know what kind of measures the new U.S. government will unveil."
As of 0451 GMT, the benchmark Nikkei had shed 122.99 points to 7,881.11, after ending morning trade up 0.6 percent.
The broader Topix declined 1.9 percent to 784.28.
Investors closely watched the yen's movement against the dollar as a stronger yen curbs exporters' overseas profits when they are repatriated.
The dollar was trading around 93.18 yen, compared to a five-week low of 92.53 yen hit on trading platform EBS the previous day.
Investors were also reluctant to take positions ahead of major events including Friday's announcement of U.S. jobs data and a decision on the fate of the Big Three U.S. automakers.
Committees in the U.S. Congress are scrutinising auto company restructuring proposals and an urgent appeal for $34 billion in aid ahead of make-or-break hearings, which start on Thursday. They will also question the chief executives of General Motors Corp, Ford Motor Co and Chrysler LLC.
AUTOS DENTED, OIL FIRMS JUMP
Honda skidded 5.3 percent to 1,701 yen and Toyota Motor Co slid 3 percent to 2,715 yen. Nissan Motor Co lost 4.5 percent to 298 yen.
Automakers have been battered after a report issued on Tuesday showed U.S. auto sales had plunged in November to their lowest level since 1982.
Adding to the gloom, Honda said on Thursday it expects the U.S. vehicle market to fall by about 5 percent next year and said it could reduce production further after announcing a series of cutbacks around the world last month.
Shares of Panasonic shed 3.3 percent to 1,055 yen, while Sanyo tumbled 13.6 percent to 146 yen.
Panasonic said on Nov. 7 it wanted to buy smaller rival Sanyo and later offered 120 yen per share, well below the market price.
A spokesman at Panasonic said on Thursday it would not disclose details of its ongoing talks with Sanyo's shareholders.
Shares of Canon Inc. fell 2.1 percent to 2,590 yen after public broadcaster NHK said the office equipment and digital camera maker is planning to lay off about 1,100 domestic contract workers at two of its manufacturing subsidiaries, as it grapples with slow camera sales.
Nippon Oil jumped 7.5 percent to 344 yen and Nippon Mining Holdings shot up 10.6 percent to 283 yen.
UBS Securities analyst Toshinori Ito said the merger is positive not only for the merging companies but also the broader Japanese oil refining industry which is struggling with stiff price competition. (Reporting by Aiko Hayashi; editing by Sophie Hardach)