Nikkei falls as large caps punished for disappointing earnings

* Seiko Epson slumps to lifetime low on underwhelming
results
* Sumitomo Heavy skids, slashes profit outlook on weak China
demand
* Komatsu plummets to 9-1/2 month low, cuts guidance
* Honda falls after undershooting expectations
* Panasonic, Softbank gain on earnings, dividends

By Sophie Knight
TOKYO, Aug 1 (Reuters) - Japan's Nikkei share average fell
on Wednesday morning as a host of companies were pummelled for
disappointing earnings and as investors look to key central bank
meetings this week for action to stem a global slowdown.
Construction machinery maker Komatsu Ltd and
shipbuilder Sumitomo Heavy Industries Ltd were among a
raft of companies that cut profit outlooks after being hit by
weakening demand in China, while Seiko Epson slumped to
a lifetime low after reporting poor sales in Europe.
"The market feels very rough today, there are a lot of names
being really hammered," said a hedge fund partner.
"It seems quite an extreme reaction considering earnings
really weren't that bad -- it makes me wonder what expectations
people actually had when they bought them."
The Nikkei dropped 1.1 percent to 8,601.63, falling back
below 8,687.93, the 50 percent retracement of its rally from
June 4 to July 4 that it reached on Tuesday as investors sought
to improve their portfolios at the end of the month.
Earnings-inspired gains for a handful of companies including
Panasonic Corp, which shot up 6.4 p ercent after
striking its first quarterly profit since the October-December
quarter of 2010, were not enough to counter losses prompted by
disappointing forecasts at other firms.
Ink-jet printer maker Seiko Epson slid 14.8
percent, slamming into a record low of 536 yen after the company
cut its full-year operating profit forecast by 20 percent to 28
billion yen ($359 million), citing poor U.S. and Europe sales.
Weakening demand in the euro zone due to the region's fiscal
crisis has cast a large shadow over Japan's earning season.
While China's slowdown was in focus on Wednesday morning when
its official Purchasing Manager's Index (PMI) came in at 50.1,
below expectations and down from 50.2 in June.
"China's central bank cut rates last month but it's not
helping; the Shanghai Composite index is still falling
and shows no sign of stopping," said Masayuki Doshida, senior
market analyst at Rakuten Securities.
Komatsu Ltd, a construction machinery maker
dependent on China for much of its revenue, skidded 7.8 percent
after cutting its annual operating profit outlook by 16.8
percent and posting an 18.5 percent drop in quarterly operating
profit in April-June compared to the previous year.

The Shanghai Composite lost 5.5 percent in July after losing
6.2 percent in June and has stooped to 40-month lows in recent
sessions. The Nikkei, by comparison, lost 3.5 percent in July.

The broader Topix index dropped 1.1 percent to
728.49, with volume at 45 percent of its full 90-day average by
the midday break.

CHERRY-PICKING BUT NO HARVEST
"Today is very much a day for cherry-picking stocks based on
earnings," said Ryota Sakagami, chief strategist of equity
research at SMBC Nikko Securities.
"Everyone is waiting for the bigger macro events so it's not
time for purchasing the market as a whole."
Market players have been speculating on whether the U.S.
Federal Reserve will introduce new easing measures after a
two-day policy meeting on Wednesday, while the European Central
Bank will meet on Thursday following ECB president Mario
Draghi's comment last week that the bank would do "whatever it
takes" to save the euro.
"There is very little chance that the Fed will bring in more
quantitative easing just yet but (Fed Chairman Ben) Bernanke
might give a sign whether they will do it at all in the future,"
Sakagami said.
"We're far more likely to see the ECB do something big, like
starting to buy Spanish bonds, simply because Draghi wouldn't
say something like that without following it up."
A move by either bank could weaken the yen against the
dollar or the euro, aiding Japanese exporters such as Honda
Motor Co Ltd, which dropped 5.7 percent after a strong
yen eroded profits in North America despite a sales recovery.

Elsewhere, Olympus shed 6.8 percent after shareholder Terumo
Corp said on Tuesday it had filed a lawsuit against the
camera and endoscope maker, seeking damages for lost shareholder
value due to its accounting scandal last year. Terumo proposed a
50 billion yen investment in Olympus last week, an offer that
Olympus then said it was considering.