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* Japan’s top bank Q2 profit 65 bln yen vs 34.7 bln estimate

* Keeps FY fcast at 300 bln yen vs 280.6 bln consensus

* To raise up to 1 trillion yen via new share issue

* MUFG, M.Stanley to keep two Japan securities companies

* Shares fall 0.6 pct before results
(Recasts, adds analyst comment, earnings details, graphic)

By David Dolan

TOKYO, Nov 18 (Reuters) – Mitsubishi UFJ Financial Group
(8306.T) became the third major Japanese bank to post upbeat
results, underscoring the improving outlook for the sector, and
said it would raise $11 billion to meet stricter capital rules.

Japan’s top bank also said it would adjust its plan to merge
its brokerage with Morgan Stanley’s (MS.N) Tokyo operation,
cancelling its original target of full-scale integration.
Mitsubishi UFJ owns one-fifth of the U.S. investment bank.

Japanese lenders have suffered smaller credit losses than
their Western rivals, but have been slow on the rebound,
hampered by their dependence on Japan’s sluggish economy.

“It appears that the worst is behind, but revenue momentum
is still not strong and the outlook for Japanese banks is
unclear, given the uncertainties about the economy and the
possibility of deflation,” said Masahiko Watanabe, credit
analyst at Fitch Ratings in Tokyo.

Economists expect Japan’s deflation to persist until at
least the second quarter of 2011, a recent Reuters poll showed,
meaning that interest rates and revenue from lending will have
little chance to rise.

Mitsubishi UFJ confirmed earlier reports that it planned to
raise up to 1 trillion yen ($11.2 billion), becoming one of
scores of Japanese firms to tap a modest rebound in share prices
for much-needed cash.

Japanese companies have so far raised about $40 billion this
year by issuing common stock and convertible bonds to shore up
balance sheets depleted by the economic downturn. [ID:nT141402]

EYES ON MIZUHO, SUMITOMO MITSUI

Almost three-quarters of the fundraising has been by
financial firms, and analysts say that Mizuho Financial Group
(8411.T) and Sumitomo Mitsui Financial Group (8316.T), Japan’s
other big banks, will also need to raise more funds.

Speculation about the possibility of further fundraising has
weighed on bank shares this year.  Continued…