(Updates with closing prices, adds quote)

By Junko Fujita

TOKYO, Oct 17 (Reuters) - Japanese shares fell on

Friday, as bank shares declined on signs of credit stress at

U.S. regional banks, and as a stronger yen hurt sentiment.

The Nikkei slipped 1.44% to close at 47,582.15 and

the broader Topix fell 1.03% to 3,170.44.

The Nikkei volatility index, a gauge of investor

anxiety, rose to a six-month high, reflecting investor demand

for protection against drops in the stock market.

"This is a typical move when the sentiment is jolted by

credit concerns," said Shuutarou Yasuda, a market analyst at

Tokai Tokyo Intelligence Laboratory.

"As the yen strengthened toward the end of the session, the

Nikkei extended losses," he said.

Overnight, U.S. regional bank Zions Bancorporation

tumbled 13% after it disclosed an unexpected loss on two loans

in its California division.

In Japan, Mitsubishi UFJ Financial Group ( MUFG ) and

Sumitomo Mitsui Financial Group ( SMFG ) declined 3% each.

The Topix banking index lost 2.99%, the second

worst performing index after the insurance sector,

which fell 3.17%.

Technology investor SoftBank Group, which drove the

Nikkei's latest rally, lost 3.36%.

The Nikkei saw a roller coaster move this week over

political uncertainties. It slipped 2.6% on Monday following the

departure of the Liberal Democratic Party's long-term partner

Komeito from the coalition.

The index rose 3% in the previous two sessions after a small

opposition emerged as a possible coalition partner for the LDP.

The index lost 1% for the week.

"Japan's market showed signs of overheating in past sessions

and some investors feared that it could peak any time," said

Takamasa Ikeda, senior portfolio manager at GCI Asset

Management.

Ikeda, who was looking for cues to book profits, sold all of

his long position in the Nikkei futures on Friday last week

after seeing signs of weakness in U.S. shares.

"And the news about the Komeito's departure broke," he said.