* Topix down 0.3 pct; Nikkei near flat after hitting 7-wk low
* Selling by European investors weighs on banks - analyst
* Sumitomo Mitsui FG briefly hits lowest since June 2003
* Elpida drops, expects Q2 profit to miss consensus
By Aiko Hayashi
TOKYO, Nov 2 (Reuters) - Japan's broad-based Topix index fell to its lowest in 19 months on Tuesday, weighed down by weakness in financial shares and as the yen's strength near a record high against the dollar hurt exporter shares such as automakers.
The benchmark Nikkei touched a seven-week low, but analysts said the Topix has been hit particularly hard by a downbeat performance in the banking sector amid worries about stricter global banking regulations.
One analyst said selling by long-term European investors, possibly pension funds, was likely behind the declines in bank stocks on Tuesday.
But analysts said many investors were reluctant to take fresh positions before the outcome of the Federal Reserve's meeting on Nov. 2-3 and U.S. midterm elections, and as Japanese markets will be closed on Wednesday for a national holiday.
"The market is of course cautious until it sees the outcome of the Fed meeting and the U.S. election, but Japanese stocks are being pressured more by selling from real money investors," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.
"Japanese banking shares are also pressured by Basel, as they are part of the global banking sector. With uncertainty over the outlook for European banking shares remaining, it may be inevitable that those shares are taken out of portfolios."
Under new global banking regulations proposed last month, known as "Basel III," banks will be required to hold top-quality capital worth at least 7 percent of their risk-bearing assets -- more than three times current requirements.
The Topix index was down 0.2 percent at 801.46 by the lunch break. It earlier fell to 799.64, its lowest since April 2009.
The benchmark Nikkei was down 0.1 percent at 9,145.19, after falling as low as 9,126.66, a seven-week low.
So far this year, the Topix has lost nearly 12 percent and the Nikkei is down 13 percent, while MSCI Japan has shed about 12 percent.
By contrast, the Standard & Poor's 500 Index has gained about 6 percent during the same period and the pan-European FTSEurofirst 300 index of top shares is up 4 percent.
The dollar was trading at 80.74 yen, near a postwar historic low of 79.75 yen marked in April 1995.
Sumitomo Mitsui Financial Group, Japan's No.3 bank, was almost unchanged at 2,362 yen, after earlier losing as much as 1.5 percent to hit its lowest since June 2003. Second-ranked Mizuho Financial Group fell 0.9 percent to 115 yen.
Among exporters, Honda Motor Co lost 2.1 percent to 2,730 yen, Sony Corp slipped 1.2 percent to 2,619 yen and Advantest fell 1.7 percent to 1,469 yen.
Elpida Memory dropped 5.7 percent to 759 yen after saying it expects a quarterly profit well short of the market consensus as slowing PC demand pushes down DRAM chip prices and a stronger yen eats into the Japanese PC memory makers' earnings. (Editing by Chris Gallagher)