Nikkei drops 2 pct after Fed; Softbank plunges

* Softbank plunges 12.3 pct on iPhone 5 report

* Buying ahead of dividend deadline provides support

* Financials follow U.S. counterparts lower

* China manufacturing sector report weighs on sentiment

By Lisa Twaronite

TOKYO, Sept 22 (Reuters) - The Nikkei stock average lost
more than 2 percent on Thursday after the Federal Reserve cited
significant risks to the U.S. economy, while Softbank Corp
plunged to its lowest since July 2010 on a report it
would lose exclusive rights to sell the iPhone in Japan.

Some strategists said selling could intensify after Sept.
27, which is the last day for investors to buy many Japanese
stocks and still get dividends on them for the April-September
half year.

"Once the dividend-buying factor is no longer supporting the
market next week, we could see a tough situation, and the Nikkei
could break below 8,500," said Fumiyuki Nakanishi, a strategist
at SMBC Friend Securities.

Market participants said Tokyo's losses were also due in
part to domestic position adjustments ahead of the end of the
April-September half-year this month, when investors often lock
in profits.

But market players say attractive valuations still support
the Tokyo market. The Nikkei has lost more than 15 percent since
early July, when it last traded above 10,000, while the Standard
& Poor's 500 Index lost about 13 percent in the same
period.

The Nikkei ended down 2.1 percent at 8,560.26. It
was trading below its 25-day moving average of 8,756, but
remained above support at its Sept. 14 low of 8,499.34, which
was its lowest intraday level since March.

The broader Topix index slipped 1.7 percent to
744.54.

Also weighing on Japanese shares on Thursday were reports
from China that suggested the world's No. 2 economy may not be
able to pick up the slack from flagging U.S. and European
growth.

A preliminary survey showed China's manufacturing sector
contracted for a third consecutive month in September, while
separate indicator showed inflation picked up.

"The China data just adds to negative factors already on
everyone's mind, such as U.S. economic worries, the yen's
strength against the dollar and the euro, as well as Europe's
debt problems and whether Greece will default," said Koichi
Ogawa, chief portfolio manager at Daiwa SB Investments.

U.S. WOES

The decline in the Nikkei was, however, more moderate than
Wall Street, which slid 3 percent for its worst drop in a month
after the Fed's announcement, with selling accelerating as
volume spiked in the last hour of trading.

The Fed said there were significant risks to an already weak
U.S. economy, including strains on global financial markets,
even as it launched a new plan to lower long-term borrowing
costs and bolster the battered housing market.

The U.S. central bank said it would sell $400 billion of
short-term Treasury bonds to buy the same amount of longer-term
U.S. government debt.

Shares of Softbank, which has long been the sole provider of
Apple Inc's iPhone in Japan, plunged 12.3 percent to
2,282 yen. It earlier sank as low as 2,271 yen, its lowest point
in 14 months, on a report that rival KDDI Corp will
start selling the iPhone 5 in November.

KDDI initially rose, but then gains unravelled and its
shares fell 0.8 percent to 624,000 yen. Softbank and KDDI were
the heaviest-traded shares by turnover.

Financial shares fell after a slide in their U.S.
counterparts, after Moody's Investors Service lowered debt
ratings for Bank of America Corp , Citigroup Inc
and Wells Fargo & Co on Wednesday, saying the U.S.
government is getting less comfortable with bailing out large
troubled lenders.

Sumitomo Mitsui Financial Group , the fifth-most
traded issue by turnover, fell 1.8 percent to 2,089 yen, while
Mitsubishi UFJ Financial Group shed 1.5 percent to 332
yen. Nomura Holdings lost 4.8 percent to 281 yen.

Volume was slightly below recent daily averages, with about
1.70 billion shares trading on the Tokyo Stock Exchange's main
board. That fell short of last week's average of 1.75 billion
shares, but topped Wednesday's volume of about 1.44 billion.

(Additional reporting by Natalia Konstantinovskaya; Editing by
Chris Gallagher)