* BOJ expects to unveil bold monetary easing steps * Weak U.S. data prompts investors to take profit * Fast Retailing falls, giving up Wednesday's near 14 pct jump By Dominic Lau TOKYO, April 4 (Reuters) - Japan's Nikkei average dropped 1.7 percent on Thursday, with sentiment affected by concerns over the U.S. recovery after weaker-than-expected data as markets waited on the outcome of a crucial Bank of Japan policy meeting. The Nikkei shed 208.17 points to 12,154.03, 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 12,203.93. The main focus for the local market was on the outcome of the BOJ's two-day meeting, the first under its new leadership. 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. "This time is QE1, just focusing on the JGB market," he said," said Shun Maruyama, chief Japan equity strategist at BNP Paribas. Murayama said the BOJ would likely disappoint the market as it 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. Data from the United Stated provided an early bearish lead for the Nikkei, with exporters coming under pressure. Toyota Motor Corp, Honda Motor Co, Canon Inc and construction machinery maker Komatsu Ltd were down between 1.8 and 3.8 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. Losses in index heavyweight Fast Retailing also weighed on the market. The operator of Uniqlo casual fashion chain sank 3.2 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 1.4 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. Lenders Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group also lost ground, down between 0.8 and 2 percent. 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 1.3 percent to 996.82 on Thursday morning. Mitsubishi Heavy Industries Ltd, however, advanced 2.7 percent after the Nikkei newspaper said the Japanese firm and France's Areva SA have won an order to build Turkey's second nuclear power plant -- a project that is expected to cost some $22 billion.