Japan's Nikkei falls 1.6 pct on weak China data

* Lacklustre Chinese factory data reinforces China slowdown
fears
* Effect of BOJ easing seen as short-lived
* NTT hits highest closing level in 6 months on share
buyback

By Dominic Lau
TOKYO, Sept 20 (Reuters) - The Nikkei average shed 1.6
percent on Thursday, giving up the previous session's sharp
gain, as lacklustre Chinese manufacturing data reinforced
concerns over flagging demand in Japan's largest trading
partner.
Companies with heavy exposure to China took a beating after
the HSBC Flash China manufacturing purchasing managers' index
only ticked up to 47.8 in September from a nine-month low in
August of 47.6, with few signs of a fast turnaround as the
sector remained in contraction.
Miners, shippers and steelmakers
, which are among the most affected by weak Chinese
and global demand, were down between 2.4 and 3.4 percent.
Adding to the gloom, data showed Japanese exports to China
dropped 9.9 percent in August compared with the same month a
year earlier.
The Nikkei ended 145.23 points lower at 9,086.98,
breaking support at its five-day moving average at 9,119.50, in
solid volume, while the Nikkei China 50, made up of
companies with significant exposure to China, lost 2 percent.
"We were all surprised by the reaction. The whole region is
down but Japan is underpeforming. But that's down to the
currency," a senior dealer at a foreign bank said. "The currency
reversed pretty hard overnight. People were disappointed as
usual with the Bank of Japan."
The yen rose to 78.184 yen to the dollar after
hitting a one-month low of 79.23 on Wednesday after the BOJ
decision to expand its asset buying and loan programme by 10
trillion yen ($127.76 billion) to 80 trillion yen to bolster
Japan's export-driven economy.
"People are selling out of their call (options). People have
been running quite a large position in upside calls for a couple
of weeks now ... speculation around the U.S. QE, speculation
around the Japan QE," the senior dealer said.
"We've seen a lot of people coming in taking that off over
the last few days, so it's more about profit-taking than
anything else."
Thursday's drop wiped off all of the gains on Wednesday,
which saw the Nikkei hitting a four-month closing high.
The benchmark is up 7.5 percent this year, trailing a 16.2
percent rise in the U.S. S&P 500 and a 12.4 percent gain
in the pan-European STOXX Europe 600 index.
Still, Japanese equities have a similar valuation to
European shares. Japanese stock has a 12-month forward
price-to-earnings ratio of 11.1, versus STOXX Europe 600's 11
and S&P 500's 12.9, according to Thomson Reuters Datastream.
"I don't think there's going to be as big an effect on
stocks this time as their 'Valentine easing'," said Yoshihiko
Tabei, chief analyst at Kazaka Securities. "The outlook for the
global economy is bleaker. They also didn't mention deflation."
The BOJ surprised the market in February by expanding its
asset purchases programme, which helped the Nikkei rally 10
percent in the subsequent month and pushed the yen about 7
percent weaker against the dollar over the same period.
Construction machinery makers Komatsu Ltd and
Hitachi Construction Machinery Co Ltd, which have large
exposure to the world's second-largest economy, shed 3.1 and 2.6
percent respectively, on Thursday.
Nissan Motor Co, which one trader said earns about
25 percent of its net profit from China, ahead of Honda Motor
Co's 16 percent and Toyota Motor Corp's 21
percent, dropped 3.4 percent, underperforming the other two
major rivals. Honda fell 1.9 percent and Toyota slipped 1.4
percent.
Japanese automakers would also see an impact on September
sales in China after recent anti-Japanese protests over a
territorial dispute, the head of Japan'a auto lobby said.

SEMICONDUCTORS VS TELECOMS
Weakness in semiconductor-related companies also weighed on
the Tokyo market on concerns over the outlook for semiconductors
following speculation that Samsung Electronics Co Ltd
may cut its chip investment next year, although
Samsung said it has not decided on its business plan for the
next year.
Tokyo Electron Ltd, Dainippon Screen Manufacturing
Co Ltd and Advantest Corp were down between
4.6 and 6.6 percent.
The broader Topix index dropped 1.4 percent to
753.81, with 1.9 billion shares changing hands, down from
Wednesday's 2.07 billion but up from last week's average of 1.62
billion.
The telecommunications sector was the best
performer, led by a 7.1 percent surge in Nippon Telegraph and
Telephone Corp after it said it plans to buy back up to
150 billion yen ($1.9 billion) worth of its own shares, or 3.4
percent of all shares issued, excluding treasury stocks.
Other gainers included Japan Airlines Co Ltd, up
0.4 percent to extend Wednesday's 1 percent rise from its
initial public offering price of 3,790 yen. It was the
most-traded stock on the main board by turnover.