Japan shares weighed down by weak China factory activity report

TOKYO, Jan 23 (Reuters) - The Nikkei stock average reversed early gains to end 0.8 percent lower on Thursday after a survey showed manufacturing activity in China, one of Japan's top trading partners, contracted in January for the first time in six months. The Nikkei ended 125.07 points lower at 15,695.89, breaking below its five-day moving average of 15,737.79. Before the release of the disappointing flash Markit/HSBC Purchasing Managers' Index survey, the benchmark had risen as high as 15,958.58 to a two-week peak and near the 16,000-mark it had crossed last month for the first time in six years.

"They are in the middle of a reform right now to fix shadow banking ... to open markets to the private sector," said Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas in Tokyo. "In the middle of those reforms, those PMI numbers are going to be quite bumpy." "The second half is probably going to be better. The first half will be a little bit subdue," he added. The Nikkei has gotten off to a soft start this year after rallying 57 percent in 2013, its best annual rise since 1972. The broader Topix index closed down 0.9 percent at 1,287.52, with 2.91 billion shares changing hands, the highest in a week. The JPX-Nikkei Index 400, a recently introduced gauge comprised of companies with a high return on equity and robust corporate governance, fell 0.9 percent to 11,625.77.