* Yellen spooks investors by suggesting an earlier start to Fed rate hikes
* Foreigners sold record 1.09 trillion yen in Japan shares last week
* Real estate shares fall on profit-taking
TOKYO, March 20 (Reuters) - Japanese stocks retreated from one-week highs on Thursday after Federal Reserve Chair Janet Yellen raised the prospect of interest rate hikes starting earlier than previously thought, sparking a selloff in equity markets and lifting the U.S. dollar. The weaker yen helped to contain broader market losses as a softer Japanese currency is generally seen as a positive for exporters' income. The Nikkei share average fell 0.4 percent to 14,407.74 in choppy mid-morning trade, after rising to as high as 14,548.76 earlier. Record foreign stock sales last week also weighed on the market, traders said. On Wednesday, Yellen said the Fed might end its bond-buying program this fall, and could start to raise interest rates around six months later, earlier than anticipated. The dollar rose to 102.40 yen, having surged 0.9 percent after Yellen's comments prompted investors to bring forward the timing of interest rate hikes. Exporters were mixed, with Honda Motor Co rising 0.5 percent, Toyota Motor Corp shedding 0.3 percent and Canon Inc falling 0.3 percent. "Investors are avoiding risks amid uncertainties about the Fed. Also, they don't have to take positions before major events in April," said Nobuhiko Kuramochi, a strategist at Mizuho Securities. "For the Japanese market, people want to see how the April sales tax increase affects the economy and if the Bank Of Japan reacts to that." Tokyo is scheduled to raise the sales tax to 8 percent from 5 percent on April 1, with many brokers worrying that the economy could take a big hit due to an expected downturn in consumption. Kuramochi said that foreign investors may stay on the sidelines for now given the Ukraine tensions. Last week, foreign investors sold a record 1.09 trillion yen ($10.7 billion) of Japanese stocks, according to data released Ukraine crisis and a slowdown in China rattled investors.
Real estate stocks fell on profit-taking after surging on the previous day on the back of rising land prices in Japan's largest cities for the first time in six years in 2013. Mitsui Fudosan Co shed 2.9 percent and Mitsubishi Estate Co declined 2.2 percent. Among the key movers, Sony Corp gained 2.0 percent after the Nikkei reported that the company will reduce by about three-quarters the number of its parts suppliers to speed up development of its electronic products. The broader Topix index dropped 0.3 percent to 1,160.34. The JPX-Nikkei Index 400, a gauge comprising firms with high return on equity and strong corporate governance, was down 0.3 percent at 10,510.18.
(Editing by Shri Navaratnam)