Nikkei falls before US-China tariff deadline; banks weaken

* Short-term players trade on yuan moves - analyst

* Fast Retailing contributes hefty negative points to Nikkei

* ‘MUJI’ brand operator Ryohin Keikaku tumbles

TOKYO, July 5 (Reuters) - Japan’s Nikkei share average fell on Thursday morning as trade tensions kept activity in check, while banks and index-heavy stocks such as Fast Retailing dragged on the market.

Investors were jittery ahead of July 6, when U.S. tariffs on $34 billion worth of Chinese goods are set to kick in. China has said it would retaliate with tariffs on U.S. products.

The Nikkei dropped 0.2 percent to 21,679.16 in midmorning trade.

Analysts said that cash trade will likely be thin, while short-term players such as commodity trading advisors are expected to trade on futures following China’s yuan moves. If anxieties over U.S.-China trade frictions deepen, they may sell the yuan and buy the safe-haven yen, which could dent stocks further.

“There is so much uncertainty over which direction the trade issue is going so most cash traders may not take large positions for the time being,” said Isao Kubo, equity strategist at Nissay Asset Management.

China’s yuan was 0.1 percent lower after gaining 0.2 percent against the dollar on Wednesday, a day after the central bank assured markets it would keep the currency stable amid growing worries about trade friction.

Fast Retailing, which declined 2.2 percent on Wednesday after its weak June same-store sales disappointed investors, extended its declines and dropped 1.6 percent. It contributed 34 hefty negative points to the Nikkei benchmark index.

Banks and brokers were under pressure, with Mitsubishi UFJ Financial Group and Mizuho Financial Group each falling 0.8 percent and Nomura Holdings shedding 0.4 percent.

The retail sector underperformed. Ryohin Keikaku, maker of lifestyle goods sold under the ‘MUJI’ brand, tumbled 13 percent to hit a five-month low after its annual operating profit forecast undershot market expectations.

It expects an operating profit of 50 billion yen for the year ending February 2019, compared to 50.7 billion yen estimated by 11 analysts polled by ThomsonReuters Starmine. It was the second biggest loser on the board.

The broader Topix dropped 0.3 percent to 1,688.23. (Editing by Shri Navaratnam)