* BOJ expects to unveil bold monetary easing steps * Weak U.S. data prompts investors to take profit * Heavyweight Fast Retailing falls, giving up part of Wednesday's jump By Tomo Uetake TOKYO, April 4 (Reuters) - Japan's Nikkei average dropped 1.7 percent at Thursday's midday break, with concerns over the U.S. recovery hurting sentiment as markets awaited the outcome of a crucial Bank of Japan policy meeting. The Nikkei shed 213.03 points to 12,149.17, after rebounding 3 percent on Wednesday from steep losses earlier in the week. Thursday's drop took the index back below its 25-day moving average of 12,203.59. The main focus for the local market was centred on the outcome of the BOJ's two-day meeting, the first under its new leadership, which comes later on Thursday. "Market players are waiting for the BOJ decision and want to see how serious and eager Governor (Haruhiko) Kuroda is about combating deflation," said Mitsushige Akino, executive director and chief fund manager at Ichiyoshi Asset Management. The central bank is expected to embark on a bold experiment by pulling out all the stops to beat deflation, starting with ramping up its bond buying and extending the maturities of that debt. Still, given that the market has built up high expectations for aggressive easing steps, some traders warned of possible disappointment. "This time is QE1, just focusing on the JGB market," he said," said Shun Maruyama, chief Japan equity strategist at BNP Paribas. Maruyama was of the view that the BOJ was unlikely to raise the size of its purchase of risky assets, such as exchange-traded funds and real estate investment trust, at this meeting. "I believe the Nikkei will correct to 11,000, so another 10 percent decline is highly likely," he said. Weak data from the United Stated provided an early bearish lead for the Nikkei, with exporters coming under pressure. Toyota Motor Corp, Mazda Motor Corp, Canon Inc and construction machinery maker Komatsu Ltd were down between 1.3 and 4.7 percent. U.S. private employers added 158,000 jobs last month, its weakest pace in five months, while growth in the vast service sector slowed, raising concerns that the economic recovery could be hitting a soft patch. FAST RETAILING SLIPS Losses in index heavyweight Fast Retailing also weighed on the market. The operator of Uniqlo casual fashion chain sank 4.6 percent, giving up some of the previous session's near 14 percent jump after Uniqlo posted a 23.1 percent surge in Japan same-store sales in March. Investors took profit on real estate and financial shares, which have been rallying in the past few months on expectations that they will benefit from the reflationary drive. The real estate sector eased 1.2 percent but is still up 65 percent since mid-November, outpacing a 40 percent rise in the benchmark Nikkei during the same period, when Prime Minister Shinzo Abe unveiled proposals during his election bid for bold fiscal expansionary and monetary easing policies. In terms of valuations, real estate companies are getting expensive, with their 12-month forward price-to-book ratio climbing to 2.2. That compares with Japanese equities' 1.15 and the real estate sector's 10-year average of 1.83, according to Thomson Reuters Datastream. Banks, on the other hand, offer a much cheaper valuation. They carry a 12-month forward P/B of 0.8, even though their share prices have risen 51 percent since mid-November. The broader Topix index lost 1.2 percent to 998.14 in subdued trade, with 1.49 billion shares changing hands at the midday break. It is poised to post thin daily volume compared with last month's average daily volume of 3.24 billion shares.