* Exporters stumble on euro zone worries * Nippon Steel gains on revised profit report * U.S. earnings seen as catalyst for market rebound By Sophie Knight TOKYO, April 16 (Reuters) - Japan's Nikkei share average fell 1.7 percent on Monday as investors cut their exposure to risky assets in response to fresh concerns over the euro zone debt crisis after Spanish bond yields soared. Exporters dependent on the European market were heavily sold, with TDK Corp, Konica Minolta Holdings Inc and Nikon Corp shedding between 2.2 and 3.9 percent as the euro slipped below 105 yen. "Even after the European Central Bank's liquidity operation earlier this year, the yields of Spain's government bonds are continuing to rise, which reflects investor doubts over its finances and this concern came to the fore last week," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities. The Nikkei closed down 167.35 points to 9,470.64, falling below 9,500, a key psychological level. Concerns over the viability of Spanish banks and their possible impact on global banking system hit Japanese bank shares, with Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group shedding between 2.3 and 2.5 percent. Data released on Friday showed Spanish banks increased their reliance on cheap loans from the European Central Bank, as they were virtually shut from the wholesale credit market. "It's going to be a mixed market this week, as investors react to news from the euro zone and the NYSE's poor performance last week, as well as the financial forecasts from some major Japanese firms due this week," said Masayuki Otani, chief market analyst at Securities Japan, Inc. Nippon Steel Corp gained 0.5 percent after the Nikkei newspaper said the steelmaker was expected to log higher pretax profits for the year ended March 31, citing improved demand in January-March. Sharp Corp also bucked the trend, climbing 1.2 percent after announcing that it had begun producing the world's first high performance liquid crystal display panels, which traders said could give it an edge over its South Korean and Taiwanese competitors. Also outperforming the broader market, convenience store operator Seven & I Holdings added 0.2 percent. "Some of the best performers on the domestic market have been retailers this year, who have really done better than expected in light of the earthquake last year," said Fujio Ando, senior managing director of Chibagin Asset Management. The broader Topix index dropped 1.4 percent to finish at 803.83 yen. Trading was at its thinnest in three months, with 1.52 billion shares changing hands on the main board. OVERSEAS CONCERNS In addition to a still-vulnerable euro zone, concerns about unemployment in the United States and slowing demand in China have weighed on the market recently, with the Nikkei losing 6 percent in April after rallying more than 19 percent in the first quarter. Strategists say investors are looking to the International Monetary Fund's world economic update on Tuesday for insight. "We might see the growth forecast for the United States go up to 2 percent from the 1.8 percent the IMF said in January, which would boost the market," Ando said. Several major U.S. companies are due to post their results on Tuesday, including technology group Intel Corp, American Express Co, General Electric Co, and McDonald's Corp. Aside from U.S. results, market participants are pinning their hopes on a possible easing move by the Bank of Japan at its meeting on April 27. Kansai Electric Power Co rose 0.5 percent to 1,299 yen after Japan declared its two idled nuclear reactors were safe to restart. The electric & gas sector added 0.3 percent to make it one of the two sectors in positive territory.