Nikkei at 3-wk closing low as yen regains strength

* Nikkei down as Shanghai shares dip on ebb in China’s growth

* Geithner remarks lift Nikkei but effect short-lived

TOKYO, Oct 21 (Reuters) - Japan’s Nikkei average inched down to its lowest close in three weeks on Thursday, erasing early gains after the yen regained strength against the dollar and Shanghai shares drifted down.

The Nikkei had briefly risen in the morning as the yen slipped after U.S. Treasury Secretary Tim Geithner said major currencies were roughly in alignment, but the effect was short-lived as the yen rebounded and dragged down Japanese shares.

“Today’s moves showed how nervous investors were about the yen’s strength,” said Yumi Nishimura, deputy general manager at Daiwa Securities Capital Markets.

“Chinese economic data was roughly within expectations, and few people expect the country will have another rate hike soon, but Shanghai stocks are down and external factors are influencing Japanese stocks,” Nishimura said.

The benchmark Nikkei .N225 eased 5.12 points or 0.1 percent to 9,376.48, its lowest close since Sept. 30.

The broader Topix .TOPX lost 0.4 percent to 820.40.

The Nikkei bounced more than 1 percent to a session high of 9,479.25 at one point in the morning session as the yen dropped on Geithner’s comments.

Geithner, in an interview published by the Wall Street Journal on Thursday, said major currencies were now roughly in alignment. [ID:nSGE69K016]

The newspaper said the comments suggested he saw no need for the dollar to sink more than it already had against the euro and the yen.

The Nikkei initially jumped as stock market participants thought the yen was being hammered down by currency intervention by Japanese authorities, though the movement appeared to be driven solely by Geithner’s comments, traders said.

Japanese shares then struggled as the yen started to regain strength, they said.

The yen rose 0.1 percent to 81.01 JPY= against the dollar, approaching a 15-year low of 80.84 yen hit in the previous session. The Japanese currency fell as far as 81.84 against the dollar after the comments by Geithner came out.

“It’s hard to explain why Japanese shares are underperforming so much against others, but one key reason is the yen,” said Masaru Hamasaki, a senior strategist at Toyota Asset Management.

“Many are speculating that Japanese firms won’t be able to come up with strong earnings outlooks due to the yen’s strength,” Hamasaki said.

The Nikkei was also undermined as Shanghai shares edged down after Chinese data showed economic growth ebbing and inflation edging higher. [ID:nTOE69K05J]

China said its economic growth slowed in the third quarter but was a touch stronger than expected. Consumer inflation hit a 23-month high of 3.6 percent in September but was in line with market expectations.

Shanghai's key stock index .SSEC dropped 0.8 percent to 2,980.2 by late afternoon.

Currency factors are expected to drive the Nikkei, with investors closely watching for talk on foreign exchange issues at a Group of 20 meeting starting on Friday [ID:nTOE69K01G].

“Underlying sentiment is pretty weak as the Nikkei failed to rise despite seeing a big rebound on Wall Street,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

“Japanese stocks simply lack major buyers ... there are no buyers standing out now. That’s the reason why the Nikkei comes under downward pressure very easily, especially as the market has been very thin lately,” Ogawa said.

Trade was moderate, with 1.78 billion shares changing hands on the Tokyo exchange’s first section. Declining stocks outnumbered advancers by more than 2 to 1.

Shares of Central Japan Railway Co (JR Tokai) 9022.T tumbled to their lowest in nearly a year on Thursday, as investors worried the firm may need to issue shares to finance its 5 trillion yen ($61.6 billion) maglev train project. [ID:TOE69K02A]

NTT Data Corp 9613.T rose 1.5 percent to 250,600 yen after the Nikkei business daily reported the IT services company will buy U.S. firm Keane Inc for more than 100 billion yen ($1.2 billion) as it looks to make a major push into the world's biggest IT market. [ID:nSGE69J0LG] (Editing by Michael Watson)