Japan stocks slide on oil surge, yen advance

(Updates to midmorning)

TOKYO, May 22 (Reuters) - The Nikkei share average slid 1.5 percent on Thursday as Canon Inc (7751.T) and other exporters fell on a stronger yen, with profit-taking gathering speed after Wall Street tumbled to a two-week low as oil surged above $134 a barrel.

JFE Holdings Inc (5411.T) and other steelmakers, which supported the market's gains earlier this week, slid as investors locked in profits, which in turn hit trading houses after their recent surges on high commodities prices. Among the handful of gainers were Nippon Oil Corp (5001.T), Japan's largest oil distributor, and similar oil-linked shares. But even this sector was struggling, with oil and gas field developer Inpex Holdings Inc (1605.T) flat at 1.39 million yen.

"There's no way the Nikkei can escape the impact of Wall Street, even though the issue here really isn't worries about inflation directly," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

"It's more a question of valuation. Japanese stocks have become expensive after their recent rises."

The Nikkei .N225 lost 204.41 points to 13,721.89 after touching a one-week low. The broader Topix was down 1.4 percent at 1,350.69.

The dollar was hovering around 102.82 yen after falling broadly following the U.S. Federal Reserve slashing its 2008 growth forecast and warning of inflation on Wednesday JPY=.

Market players said bargain-hunting was likely at the lows, but that it would be difficult to find active buyers given the current climate and that investors were keenly watching activities overseas.

"Oil, the exchange rate, activity in Asian markets -- most of the factors today are coming from outside Japan," said Yumi Nishimura, manager at the investment advisory section of Daiwa Securities SMBC.

EXPORTERS EXHAUSTED Exporters fell broadly, with Canon down 2.2 percent to 5,340 yen and industrial robot maker Fanuc Ltd (6954.T) sliding 2.4 percent to 10,600 yen. Honda Motor Co (7267.T), which is highly dependent on the U.S. market, slipped 2.1 percent to 3,280 yen, and Toyota Motor Co (7203.T) was down 2.1 percent to 5,130 yen.

JFE Holdings tumbled 4.5 percent to 5,910 yen after the company said it had failed to conduct a required test on the strength of steel pipes mainly used for oil rigs. [ID:nTKU003292].

Fellow steelmaker Nippon Steel Corp (5401.T) was down 3.2 percent to 672 yen and Kobe Steel (5406.T) down 1.9 percent to 354 yen.

Trading houses, which had surged recently on high commodities prices, tumbled. Marubeni Corp (8002.T) fell 3.3 percent to 933 yen and Itochu Corp (8001.T) slid 3.2 percent to 1,234 yen.

The beneficiaries of record oil prices included Nippon Oil, which rose 3.2 percent to 816 yen. (Reporting by Elaine Lies; Editing by Hugh Lawson)