Nikkei falls 1.9 pct as technical picture darkens

* Nikkei slips towards key support at 25-day MA, 9,800

* Euro zone fears reignited as yuan impact fades - analysts

* NTT Data tumbles after news of employee's arrest

By Aiko Hayashi and Elaine Lies

TOKYO, June 23 (Reuters) - Japan's Nikkei average dropped 1.9 percent on Wednesday to a one-week closing low, sliding towards a key support level, as the technical picture turned increasingly dark and worries about the euro zone flared up again.

The S&P 500 .SPX lost 1.6 percent on Tuesday and fell below its 200-day moving average, a key technical support, feeding selling already set off by weak housing data that reinforced fears that the U.S. economic recovery might be flagging.

Support for the benchmark Nikkei .N225 was expected to stay firm above 9,800, the level of its 25-day moving average, even after it failed to to hold above a chart retracement on Tuesday.

Concerns about the euro zone rose after French bank Credit Agricole (CAGR.PA) pushed back profit targets for its struggling Greek unit Emporiki CBGr.AT and said it will take a 400 million euro write-down as Greece fights its debt load. [ID:nLDE65L0NB]

That followed a ratings downgrade of French bank BNP Paribas this week and S&P's announcement on Monday that it had raised estimates for loan losses for Spain's banking sector. [ID:nN21250262] [ID:nLDE65K1TE]

"There's a definite sense that euro zone troubles are coming to the fore again," said Toshiyuki Kanayama, a market analyst at Monex Inc.

"In addition, it seems clear now that Monday's rise on China's yuan policy change was exaggerated. When you stand back and look at the overall impact, it isn't really that big a deal."

Shares of NTT Data (9613.T) tumbled 8.4 percent, dragging on the Nikkei, after the systems integration and information technology firm said an employee was arrested on suspicion of bribing a Japan Patent Office official.

The benchmark Nikkei .N225 declined 189.19 points to 9,923.70, erasing all of the gains made Monday when it surged 2.4 percent to a one-month high on hopes China's increased flexibility on the yuan would increase the country's buying power.

In another weak technical sign, the Nikkei's MACD, a longer-term momentum indicator, was flattening out after rising for two weeks.

Market players said that in addition to firm support at the 25-day moving average of 9,800, short-covering emerged around 9,900, a psychological support level.

The Nikkei on Tuesday failed to hold above 10,155, a 38.2 percent retracement of the fall from its April high of 11,408.17 to its June low of 9,378.23.

The broader Topix .TOPX fell 1.5 percent to 880.84.

"Investors are likely starting to grow wary about the prospect of a slowdown in the economic recovery," said Mitsuo Shimizu, deputy general manager at Cosmo Securities.

"But as long as the Nikkei can manage to stay above 9,800, it's not too dismal a situation yet."

Trade was thin on the Tokyo exchange's first section, with 1.6 billion shares changing hands, though slightly up from last week's four-month low just below 1.5 billion.

Declining shares outnumbered advancing ones by nearly 8 to 1.

HOME SALES

Sales of U.S. existing homes unexpectedly fell in May in the latest weak data release, sparking worries that the Federal Open Market Committee may offer a less upbeat economic outlook after a two-day meeting starting later on Wednesday. [nFEDAHEAD]

But some in Tokyo thought Wall Street's fall was exaggerated and the home sales data was simply an excuse to take profits after recent gains.

"If you take a good look at the data, while the May sales were lower than expected they were still up 19.2 percent compared to last year, while April sales were revised upwards," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.

Foreign investors were sellers of Nikkei futures on Tuesday, a market player said, adding that this might well continue for a while, with European names among some of the most active.

Exporters lost ground broadly and shares that had risen on expectations that the yuan move would increase Chinese buying power, such as shippers and construction machinery shares, fell.

Nippon Yusen (9101.T) slid 3.6 percent to 344 yen and fellow shipper Mitsui O.S.K. Lines (9104.T) lost 2.7 percent to 641 yen. Hitachi Construction (6305.T) fell 2.3 percent to 1,822 yen.

Nippon Electric Glass (5214.T) fell 2.4 percent to 1,110 yen after UBS downgraded it to "neutral" and cut the target price, citing an expected profit fall for the second quarter and its view that the valuation is unlikely to rise soon.

But shares of Clarion Co Ltd (6796.T), a maker of car audio equipment, climbed 2.6 percent to 200 yen after it and mobile phone maker Nokia (NOK1V.HE) said they are collaborating on a connected car technology.

Promise Co Ltd 8574.T jumped 4.1 percent to 684 yen after the consumer lender received regulatory approval to start business via a joint venture with a local company in Shenzhen, China. It said it was planning to begin operations next month. (Editing by Chris Gallagher)