* Bank of Japan governor says corporate credit still strained
* BOJ governor urges banks to bolster capital
* Ban on naked short-selling of stocks extended
(Releads with BOJ governor comments)
By Tetsushi Kajimoto and Stanley White
TOKYO, March 24 (Reuters) - Corporate credit conditions in Japan remain severe, Japan's central bank governor said on Tuesday as he urged the country's banks to bolster their capital bases.
The comments by Masaaki Shirakawa came after the central bank earlier this month offered more than $10 billion in subordinated loans to Japanese banks to bolster capital partly depleted by the slide in the Tokyo stock market.
The comments also follow a raft of central bank measures to get credit flowing in the world's second-biggest economy, including purchasing commercial paper to free up cash in the financial system.
"It is important for bank managements to strengthen their capital base," Shirakawa said in a meeting with bankers.
"The offer of capital to banks is abnormal for a central bank," he added. "We've judged that we need to take extraordinary steps to make sure the financial system remains stable and the function of financial intermediaries will be maintained."
Major Japanese banks have been able to raise some $25 billion in recent months without government help. But it is smaller banks, more exposed to hardpressed small manufacturers and deteriorating property loans, that are most exposed to bad debts.
Shirakawa's comments came after the country's finance minister, Kaoru Yosano, said measures to support the stock market, including a ban on naked short selling, would be extended eventhough shares have been rising recently.
Japan's Nikkei share average jumped 3.3 percent to hit a 2-1/2-month closing high as Mitsubishi UFJ Financial Group and other banks soared on hopes for an upturn in the U.S. banking sector.
The index had closed at a 26-year low just two weeks ago.
"Given that the (stock) market is unstable, we think it is appropriate to continue these steps for the time being from such viewpoints as preventing unfair trading practices," Yosano said.
"We can't stop taking steps we have considered just because share prices rose temporarily. Share prices have not recovered to a level where we can stop seeking those steps," he added.
Yosano said the government would extend until the end of July its ban on naked short-selling of stocks and rules on company share buybacks, which had been due to expire at the end of the business year on March 31, due to the market's instability.
To support a floundering stock market, Japan banned naked short-selling, in which investors sell a stock without first borrowing it, and required short-sellers to declare when their positions exceed 0.25 percent of a company's outstanding shares.
Restrictions on corporations' purchases of their own shares were also relaxed last year to help stabilise markets.
Global stock markets have rallied after the United States announced plans to rid its banks of up to $1 trillion in toxic assets, its latest effort to combat the crisis.
"It was a big step forward that the United States has set about writing off bad loans and removing them from (banks') balance sheets, as such steps need to be taken eventually," Yosano told a news conference after a cabinet meeting.
STIMULUS
Among measures to support Japan during the crisis, the government extended $5.2 billion in loans from its reserves to the Japan Bank for International Cooperation (JBIC), a state-backed trade financier.
JBIC has been charged with helping ease the pressure on Japanese companies from the global credit squeeze, but Yosano said the reserves would not be extended to other financial institutions.
"We will monitor JBIC's resources and financing needs in the markets. Right now, we do not expect to lend more reserves to other financial institutions," Yosano told a financial committee of the upper house of parliament.
Tokyo is expected to tackle additional stimulus steps to cope with a deepening recession in Japan when parliament passes budget bills for the new financial year from April later this week, in time for the summit meeting on the financial crisis of leaders of the Group of 20 in London on April 2. ($1=97.78 Yen)