Reuters Nikkei falls as bank sector fear returns, yen weighs

* Nikkei falls 2.5 pct, earlier hit lowest point in 2 wks

* Surge in Bank of America bad loans revives financial fears

* Banks down, techs hit by weak IBM results

TOKYO, April 21 (Reuters) - Japan's Nikkei average slid 2.5 percent on Tuesday as a surge in bad loans at Bank of America revived fears about the U.S. financial system and economy, while a stronger yen hit exporters such as Canon Inc (7751.T).

The Nikkei earlier hit its lowest point in about two weeks. The slide follows a rally of almost 30 percent for the benchmark since early March that had gathered steam on optimism about earnings at Citigroup (C.N) and other U.S. banks.

Mitsubishi Corp (8058.T) and other trading houses, which are big dealers in energy resources, dropped a day after oil tumbled nearly 9 percent and as prices for commodities such as copper fell.

"The recent good run for banking shares might have ended with Bank of America's news yesterday. It shows that the problem of non-performing assets has not been dealt with sufficiently to reassure investors," said Takashi Kamiya, chief economist at T&D Asset Management.

"The market is also taking a breather after sharp rallies, but at the same time, investors can't sell stocks because there's still no further evidence that the economy is worsening and as we don't know what's going to happen with GM."

The benchmark Nikkei .N225 shed 219.71 points to 8,705.04, after briefly touching its lowest point since April 8. At these levels, the Nikkei was slightly above its 25-day moving average.

The broader Topix fell 2.3 percent to 829.16. more...