Nikkei falls to near two-week low as banks hit by Basel report on cash cushion

TOKYO (Reuters) - Japan's Nikkei fell to a near two-week low in volatile trade on Tuesday, erasing earlier gains as banks were hit hard by a report saying the Basel Committee may ask banks to boost capital as a sufficient cushion in case of spikes in interest rates.

The Nikkei ended 0.7 percent lower at 18,665.11, the lowest closing level since February 25. In the morning session, the Nikkei rose to as high as 18,924.38.

The broader Topix fell 0.5 percent to 1,524.75 and the JPX-Nikkei Index 400 also shed 0.5 percent to 13,856.27.

"The market was holding up in the morning and offset this concern in the banking sector. But since the market could not break through 19,000 despite a weaker yen, investors decided to take profits," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

The Nikkei business daily said the proposal to boost banks' capital has been shepherded through the Basel Committee on Banking Supervision by the U.K. and Germany, which are concerned about a rise in rates, but Japan and the U.S. have raised strong opposition.

Japan's opposition stems from its banks holding massive quantities of government bonds: 128 trillion yen ($1.05 trillion) worth in January, the Nikkei said.

(Reporting by Ayai Tomisawa; Editing by Shri Navaratnam)