Japan's Nikkei average fell 2 percent to its lowest in more than five months on Tuesday, as the euro fell further on worries that Europe's woes now included the health of some banks in addition to sovereign debt problems.

The Bank of Spain's take over of a small savings bank, CajaSur, on the weekend pushed the Dow to its lowest level since February 10 as investors shunned riskier assets. <.N>

This situation with the Spanish bank makes investors nervous because it raises suspicions that something else may be smoldering behind the scenes, said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.

Market jitters come despite recent indications of U.S. and global economic growth.

Sales of previously owned U.S. homes rose more than expected in April to a five-month high, an industry group said on Monday.

We've seen good indicators such as U.S. home sales recently, and corporate earnings were good, but it's impossible to avoid worries that the troubles in Europe will spread, dragging on regional and then global growth, said Takashi Ushio, head of the investment strategy division at Marusan Securities.

Plus, even though recent economic data has in general been good, this is all in the past. It's worries about growth later this year that's weighing on the market now.

The benchmark Nikkei <.N225> fell 196.02 points to 9,560.41 after earlier falling to 9,557.50, its lowest since early December. It has lost some 16 percent since hitting an 18-month high of 11,408.17 in early April.

Shares of exporters were hit particularly hard and textile firm Toray Industries <3402.T> tumbled more than 8 percent after it said would raise $1.2 billion from the sale of new and existing shares.

The Nikkei's relative strength index (RSI) has fallen to 25, its lowest since late November. Anything below 30 is considered oversold.

Market players said support for the Nikkei <.N225> lies around 9,500, but that if the benchmark broke this, the next target would be its November low at 9,076, which is a bit below the level of a 50 percent retracement of its 2009-2010 rebound.

The euro dipped 0.5 percent to around 110.77 yen in early Asia trade. Many Japanese exporters have set their currency assumption rates for the pair at 120-125 yen.

Tokyo Electron Ltd <8035.T> dropped 3.5 percent to 5,130 yen and Kyocera Corp <6971.T> shed 2.2 percent to 7,880 yen.

Shares of Canon Inc <7751.T> declined 2.3 percent to 3,625 yen. The company said it will freeze plans to develop flat panel televisions based on SED (surface-conduction electron-emitter display) technology.

The firm will continue developing SED TVs for commercial use, the spokesman said.

Toray fell 8.4 percent to 457 yen after news of the share sale, which will help it meet growing demand for new technologies such as lithium ion batteries and carbon fiber.

After the share offerings in June, the outstanding number of Toray's shares will increase by as much as 16 percent.

(Editing by Edwina Gibbs)