* Nikkei falls closer to 16-mth low after yen hits 15-yr high
* Nikkei seen on downtrend; next targets at 8,800, 8,697
* Europe bank worries, politics also weigh on sentiment
TOKYO, Sept 8 (Reuters) - Japan's Nikkei average dropped more
than 2 percent on Wednesday as the yen's advance to a fresh
15-year high against the dollar extinguished an upbeat mood
gained from last week's better-than-expected economic data.
A revival of concerns over European banks and uncertainty
over the political situation in Japan added to the dour mood.
The Nikkei fell back towards a 16-month low below 9,000
logged last week, hurt by what some market analysts said was
selling of futures by short-term investors, though the index will
likely find support around 8,800, a level it tested and held a
few times in recent weeks.
"With the yen's advance accelerating and worries about credit
risks in Europe heightening, the market is pressured by investor
concern about risk-taking," said Kazuhiro Takahashi, general
manager at Daiwa Securities Capital Markets.
"If inaction by the government despite mentions of
intervention by some officials triggers a further advance in the
yen, it's hard to think the situation will be fixed soon. As the
strong yen is a drag on Japanese stocks, the index could still
lose further ground."
The benchmark Nikkei <> was down 2.1 percent or 195.35
points at 9,030.60 in midafternoon after falling as low as
8,997.63, back towards a 16-month low of 8,796.45 hit on Sept. 1.
The broader Topix <> lost 1.8 percent to 819.99.
A Wall Street Journal report reignited concerns about
European sovereign debt and banks' exposure on Tuesday, sending
stocks down and lifting the low-yielding, safe-haven yen, franc
and dollar.
The dollar fell as far as 83.34 yen <JPY=>, a new 15-year low
and down 0.5 percent on the day, with traders testing Japanese
authorities' pain threshold for currency strength. []
Bank of Japan Governor Masaaki Shirakawa reiterated on
Wednesday his reluctance to return to quantitative easing but
indicated the central bank was weighing its options on how to
deal with economic impact from the yen's strength.
On the political front, Prime Minister Naoto Kan is seeking
to fend off a challenge to his leadership of the ruling party
from veteran powerbroker Ichiro Ozawa, with a party vote set for
Sept. 14.
Markets are keeping a close eye on political developments as
it could spell a potential shift in how the country copes with a
strong yen, weak economy and huge public debt. []
The Nikkei struggled to snap its downward trend, with
resistance lying ahead on technical charts.
Wednesday's drop took the Nikkei below 9,190, around its
25-day moving average, which had served as resistance from August
until this week. The 25-day moving average is considered a proxy
for a one-month moving average and is closely watched in Japan.
Market analysts see strong support around 8,800, and after
that, the next target is 8,697, a 61.8 percent retracement of the
Nikkei's rally from its March 2009 low to its April 2010 high.
Shares of blue chip exporters lost ground. Investors fret
about a stronger yen as it eats into exporter profits.
Sony Corp <6758.T> fell 2.3 percent to 2,456 yen and Canon
Inc <7751.T> shed 2.2 percent to 3,505 yen. Honda Motor Co
<7267.T> skidded 2.9 percent to 2,734 yen.
Many Japanese companies have assumed a dollar/yen rate of 90
yen and euro/yen rates of 110-115 yen in the year to March 2011.
(Reporting by Aiko Hayashi; Editing by Chris Gallagher)
