Tokyo stocks dropped in lackluster trading as talks about forming a conservative coalition government broke down. The dollar slipped against the yen.

The benchmark Nikkei stock index fell nearly 89 points or 0.64 % to close at 13,709.

Stocks fell after a spokesman for the ruling Liberal Democratic Party said negotiations with a smaller party over forming a coalition government had reached an impasse. Without the Liberal Party's votes to give it a majority in the upper house, the LDP could have a tough time winning passage of key bank-bailout legislation, analysts warned.

That drove down shares of major banks such as the Dai-Ichi Kangyo Bank Ltd., which lost more than 3%.

Still, overall prices didn't move much because of a dearth of market participants as many foreign investors stayed home for Christmas and Japanese investors prepared for New Years holidays, when markets here close.