TOKYO, Sept 26 (Reuters) - Japanese stocks closed lower on Monday as investors returned from a long weekend to markets that were dented by Japanese authorities' currency intervention, the collapse of the British pound, and heightened recession fears.

The Nikkei dropped 2.66% to end at 26,431.55 after slipping as far as 26,424.60, its lowest level since July 14. The index has now fallen for three straight days and is down more than 5% since the beginning of last week.

The broader Topix fell 2.71%.

Stock markets tracked broader Asian peers lower after the U.S. dollar soared and bond yields strengthened amid increasing fears of a global recession. S&P 500 e-mini futures fell 0.79%.

"The risk of monetary tightening causing a recession has heightened," said Yasushi Yokoyama of Aizawa Securities. "It's not a situation where we can aggressively buy stocks."

The yen was last at 143.8 to the dollar, having weakened 2.43% since the Ministry of Finance's intervention drove it to 140.31 last week, while the benchmark 10-year Treasury yield was at 3.7627%.

"There were strong expectations that the yield would settle at 3.5%, but it continued to rise and there's been selling focused on blue-chip stocks," said a domestic asset manager.

Japanese authorities last week intervened in the foreign exchange market to shore up the battered yen for the first time since 1998.

The pound sterling fell to an all-time low of $1.0327, extending losses from Friday after Britain's new chancellor Kwasi Kwarteng announced a sweeping package of tax cuts.

Shares of chipmaking equipment manufacturer Tokyo Electron Ltd weighed on the Nikkei the most with a 4.14% drop, followed by SoftBank Group Corp's 5.18% slide.

Automaker stocks also traded in red, with Mazda Motor Corp marking the biggest loss at 5.56% following a report that the company would stop car production in Russia.

Of the Nikkei's 225 constituents, 217 made losses, one traded flat, and just seven advanced. Every sector dropped overall.

Mobile operator KDDI Corp was the best performer in the Nikkei, gaining 0.58%. (Reporting by Sam Byford and Tokyo markets team; editing by Uttaresh.V)