* Nikkei extends losses in afternoon
* Chinese shares' sharp drops spark economy, stability fears
* China-related stocks underperform
* Fed tapering still pressuring market - analyst
By Ayai Tomisawa
TOKYO, June 25 Japan's Nikkei share average fell
1.8 percent in choppy trade on Tuesday, erasing earlier gains,
as worries about stresses in China's banking system reignited
investors' fears, dragging down companies with high exposure to
The Nikkei dropped 238.69 points to 12,824.09 by
early afternoon, after rising as high as 13,234.89 earlier.
Analysts say futures selling kicked in after Chinese shares
sank deeper into bear market territory, extending their sharp
declines from the previous day.
The Shanghai Composite Index was down 3.8 percent
after diving 5.2 percent on the previous day, while the Hang
Seng Index dropped 1.4 percent after falling 2.2 percent.
"Investors started worrying about how U.S. and European
markets would react to drops in China, and they rushed to sell,"
said Naoki Fujiwara, a fund manager at Shinkin Asset Management.
Manufacturers with high exposure to China were under
pressure, with Komatsu Ltd falling 4.3 percent, Hitachi
Construction Machinery Co tumbling 3.4 percent and
Nissan Motor Co dropping 1.7 percent.
A recent spike in inter-bank borrowing costs have raised
fears that strains in China's banking system could weigh on
already slowing growth, roiling global markets which are already
grappling with the Fed's plan to scale back its stimulus.
Some of the exporters had gained earlier as the dollar
traded above 98 yen.
Sony Corp was down 0.6 percent, Toyota Motor Corp
dropped 1.7 percent and Toshiba Corp shed 1.9
The benchmark Nikkei has dropped around 20 percent since
reaching a 5-1/2-year high on May 23, hurt by slowing growth in
China, fears of a pullback in the Fed's stimulus and
disappointment over the Japanese government's recently unveiled
The index is still up 23 percent this year, helped by Prime
Minister Shinzo Abe's sweeping fiscal and monetary expansionary
policies aimed at pulling the world's third-biggest economy out
of a two-decade long slump.
"There are few negative factors in the domestic market, but
global worries are keeping investors from taking positions,"
Kenichi Hirano, a strategist at Tachibana Securities said.
The Topix dropped 1.9 percent to 1,069.49.