JAPAN MARKETS-Shares fall after rally; dollar below 81 yen

* Nikkei down 1.4 percent after Tues rally

* Focus on economic damage, nuclear progress

* JGB futures higher; dollar below 81 yen

By Antoni Slodkowski and Natsuko Waki

TOKYO, March 23 (Reuters) - Japanese shares fell on
Wednesday after the previous day's four-percent rally, while
government bond futures ticked higher as investors paused to
assess the economic damage from this month's earthquake and
tsunami.

Investors focused on the cost of the disaster that is set to
exceed the 10 trillion yen from the Kobe earthquake in 1995,
with Tokyo shares failing to extend Tuesday's rally, led by
foreigners who were encouraged by progress in containing
radiation leaks at a nuclear plant.

The Nikkei newspaper reported the government expects total
damage from the quake that hit northeast Japan to reach 15-25
trillion yen ($185-310 billion).

Investors are also monitoring the impact on production from
the quake. Sony said on Tuesday it was cutting
output at five more plants and Toyota Motor said
it was delaying restarting assembly lines.

"The market is still extremely volatile, so I wouldn't be
surprised if the market loses much more today," said Norihiro
Fujito, senior investment strategist at Mitsubishi UFJ Morgan
Stanley Securities.

He added that a combination of concerns on the impact of the
tsunami and earthquake, cuts in electricity supply and rising
oil prices were set to pressure Japan stocks.

The Nikkei average fell 1.4 percent to 9,471.79 ,
slipping below a key support level at 9,500. The broader TOPIX
index lost 1 percent to 859.80.

Nikkei futures traded in Osaka dropped 1.4 percent at 9,390
. Benchmark Japanese government 10-year bond futures
rose 0.2 point to 139.61.

The dollar fell around 0.15 percent to 80.93 yen , off
last week's peak of 82.00 yen set after the world's major
central banks intervened to stem export-damaging strength in the
Japanese currency.

Data from the Bank of Japan showed on Tuesday the Group of
Seven countries may have sold a total of around 530 billion yen
on Friday, far smaller than market talk.

(Additional reporting by Akiko Takeda; Writing by Natsuko Waki;
Editing by Joseph Radford)