Japan stocks down on Wall St fall, Pakistan unrest

(Updates to midmorning)

TOKYO, Dec 28 (Reuters) - Japanese stocks fell on Friday, with exporters such as Canon Inc (7751.T) hurt by a firmer yen and a fall on Wall Street due to worries about U.S. growth, while the assassination of Pakistani opposition leader Benazir Bhutto sparked concerns about geopolitical risk.

The benchmark Nikkei average .N225 is poised to end 2007 down more than 10 percent, the first annual fall in five years, becoming the world's worst-performing major stock market this year in the shadow of booming markets and vibrant economies elsewhere in Asia.

The market largely shrugged off a series of major economic indicators including consumer prices and unemployment data released before the opening.

"Unrest in Pakistan is eroding the market sentiment dramatically as Pakistan, unlike North Korea or Iran, is known to really have nuclear weapons," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"The implication for the stock market is worries about higher oil prices and a weaker dollar."

In a sign of investor anxiety, safe-haven assets such as gold and government bonds were in demand.

As of 0035 GMT, the benchmark Nikkei average .N225 was down 1.6 percent or 246.77 points at 15,317.92. It had finished the previous session down 0.6 percent at 15,564.69, snapping four straight days of gains.

The broader TOPIX index shed 1.8 percent or 27.56 points to 1,472.38.

U.S. stocks dropped on Thursday as the Bhutto assassination sparked fears of global unrest, while financial shares were pressured by an analyst's warning of larger mortgage-related write-offs.

The dollar was down 0.6 percent at 113.64 yen JPY=, reversing earlier gains that had sent it to a seven-week high at 114.65 yen overnight, according to Reuters data.

Bhutto was killed as she left an election rally in the Pakistani city of Rawalpindi, putting the Jan. 8 election in doubt and stirring concern about geopolitical stability.

Shares of exporters lost ground on the yen's gains, as a stronger yen eats into profits when overseas profits are brought home, and after a weak U.S. durable goods report raised concerns about the outlook for the U.S. economy, one of their major export destinations.

Canon skidded 2.3 percent to 5,220 yen and Sony Corp (6758.T) shed 1.3 percent to 6,260 yen.

Bank shares including top bank Mitsubishi UFJ Financial Group (8306.T) also tumbled after U.S. peers fell following an analyst warning of larger mortgage-related write-offs.

Mitsubishi UFJ was down 4.2 percent at 1,036 yen. (Reporting by Aiko Hayashi; Editing by Mike Miller)