Nikkei retreats from 8-week high on profit-taking before election
* Nikkei down 1.1 pct by midday, reversing early 1 pct rise
* Index has risen 41 pct year-to-date, yen down 15 pct vs dollar
TOKYO, July 19 (Reuters) - Japan's Nikkei share index dropped as much as 2.7 percent on Friday morning, reversing an early rise to an eight-week peak, with traders citing selling of futures led by global macro funds.
By the midday break, the Nikkei was down 1.1 percent at 14,647.61, after earlier trading as high as 14,953.29. The index is on track to snap a five-day winning streak.
"It was close to 15,000 this morning. A lot of potential good election news is priced in, so people are coming in to sell futures, probably hedging some upside or something like that," said a senior trader at a foreign bank in Tokyo.
"I think it could be the usual suspects ... global macro guys selling futures," he said.
Japan is to hold a national election for parliament's upper house on Sunday, with Prime Minister Shinzo Abe's Liberal Democratic Party (LDP) expected to win a hefty majority.
His victory will end a "twisted parliament" in which the opposition controls the upper chamber, allowing him to focus on his policies, including structural reforms, to end stagnation in the world's third-largest economy.
Japanese companies want the LDP to win Sunday's election, but they worry a big victory will allow Abe to prioritise nationalist policies at the expense of building on gains wrought by his radical stimulus measures, a Reuters poll showed.
Abe's fiscal expansionary policy, coupled with the Bank of Japan's aggressive monetary stimulus, has pushed the benchmark Nikkei up 41 percent this year, while the yen has fallen 15 percent against the dollar.
"The first arrow of Abenomics has been a striking success. The second arrow, expansionary fiscal policy, has given a caffeine kick to the economy but we expect the effects to soon wear off," Citigroup wrote in a note last week.
"The government will need to beef up the third arrow, its growth strategy, after the upcoming election, but there are formidable obstacles to boosting Japan's potential growth rate."