* Nikkei falls 1 pct, erasing day's earlier gains
* Report that GM, Chrysler mulling bankruptcy dampens mood
* Exporters hurt by firmer yen, global economic downturn
* Nippon Oil, Nippon Mining Holdings gain on merger talk (Adds comment, stocks, details)
By Aiko Hayashi
TOKYO, Dec 4 (Reuters) - The Nikkei average fell 1 percent on Thursday as profit concerns in 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 and sixth-ranked Nippon Mining Holdings Inc jumped after saying they aim to merge next October to better compete in the global oil market.
"What's reported (about GM and Chrysler) has been around in the market, but investors began to worry about financial institutions that had given out a huge amount of loans to GM and Chrysler," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.
"That sparked selling of shares in Japan, particularly in banks."
The benchmark Nikkei shed 79.86 points to 7,924.24, after rising as much as 1.3 percent earlier.
The Nikkei is up 13.3 percent from a 26-year low it hit in late October, though selling by foreign investors has limited its recovery. Foreign investors were tiny stock buyers last week after selling 1.85 trillion yen worth in the previous six weeks.
The broader Topix declined 1.3 percent to 788.88.
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 down 0.3 percent at 93.07 yen, crawling towards 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 that start on Thursday. They will also question the chief executives of General Motors Corp, Ford Motor Co and Chrysler LLC.
"It's hard to predict where the market will go, though stocks are valued cheaply, because the deteriorating in the economy has been already factored in and we don't know what kind of measures the new U.S. government will unveil," said Takashi Kamiya, chief economist at T & D Asset Management.
AUTOS DENTED, OIL FIRMS JUMP
Honda skidded 6.2 percent to 1,685 yen and Toyota Motor Co slid 3.6 percent to 2,700 yen. Nissan Motor Co lost 6.4 percent to 292 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 5.2 percent to 1,034 yen, while Sanyo tumbled 12.4 percent to 148 yen.
Goldman Sachs said on Thursday it has rejected an offer from Panasonic to buy its shares in Sanyo because it believes the offer price is too low.
Panasonic has raised its offer by 10 yen to 130 yen for each share in Sanyo, a source familiar with the matter told Reuters.
Bank shares fell, with Japan's top lender Mitsubishi UFJ Financial Group down 2.1 percent at 460 yen and No.2 Mizuho Financial Group losing 2.8 percent to 225,900 yen.
Nippon Oil climbed 3.4 percent to 331 yen and Nippon Mining Holdings shot up 11.3 percent to 285 yen.
UBS Securities analyst Toshinori Ito said their merger will be positive not only for the two companies but also the broader Japanese oil refining industry, which is struggling with stiff price competition.
Trade was active on the Tokyo exchange's first section, with 2.03 billion shares changing hands, compared with last week's daily average of 1.84 billion.
Declining stocks outpaced advancing ones 937 to 642. ($1=93.26 Yen) (Editing by Michael Watson)