The Japanese government plans to inject public funds into banks in areas ravaged by the March 11 earthquake and tsunami to make sure that businesses in the area can get credit to rebuild their operations, The Nikkei newspaper said in its Sunday edition.

The Nikkei did not say how big such capital injections would likely be but it noted that more than 11 trillion yen ($136 billion) was still available under a law passed after the collapse of Lehman Brothers in 2008 that allows for the use of public funds to replenish the capital of regional banks, credit banks and cooperatives.

Companies' demand for funds is expected to soar once rebuilding of the devastated areas starts in earnest and the government wants to give regional banks a sufficient capital cushion so they can keep on supplying credit to smaller businesses.

Among the banks operating in the quake-affected region are Tohoku Bank <8349.T>, Toho Bank <8346.T>, Bank of Iwate <8345.T>, and 77 Bank <8341.T>.

The newspaper had reported on Saturday that Japan was also considering making up to 10 trillion yen available in crisis financing to businesses to help them repair damage and finance day-to-day operations affected by the quake.

The Japanese authorities, racing to avert a disaster at a quake-crippled nuclear plant, have yet to produce an estimate of economic damage and decide how much the government will need to spend to help the world's third largest economy get back on its feet.

Economists' early estimates point to about $200 billion in losses, meaning Japan faces its biggest reconstruction push since post-World War Two. The economy could topple into recession before the effects of that effort can be felt.

Another concern is how Japan will finance that effort.

Japan's public and private investments abroad make it the world's biggest creditor and it has more than $1 trillion in foreign reserves, second only to China's.

But its public debt is twice the size of the $5 trillion economy, and although the government owes nearly all of it to its own institutions and households, economists wonder for how long it can count on them to keep underwriting spending.

(Reporting by Tomasz Janowski; Editing by Nathan Layne)

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