* Nikkei drops 1.7 pct; Topix down 1.4 pct
* Tokyo Electron rises after Q2 orders beat expectations
By Dominic Lau
TOKYO, Oct 10 (Reuters) - Japan's Nikkei share average fellto a two-month low on Wednesday on concerns that upcomingcorporate earnings results for the latest quarter have been hitby slowing global growth.
shed 1.7 percent to 8,622.22 afterfalling 1.1 percent on Tuesday.
Shun Maruyama, chief Japan equity strategist at BNP Paribas,said the Nikkei could test 8,500 as short selling by investorswere likely to continue in the next one to two weeks.
"Current short selling pressure comes from hedging againstthe forthcoming results season," Maruyama said.
He said the short-selling ratio on the Nikkei stood at 26percent on a five-day moving average, below the 28 to 30 percentlevel when short-covering tends to emerge.
"Eight thousand five hundred is the supporting line for manykinds of options and futures trading. Many investors have 8,500put options. If the price breaks down below 8,500, ... maybe themarket could go down to 8,200, 8,300."
Automakers came under pressure after they confirmed sharpdrop in September sales in China over a territorial row betweenthe two countries and raised concerns about their future in theworld's biggest auto market.
Toyota Motor Corp, Nissan Motor CoandHonda Motor Codropped between 0.9 and 2.2 percent,while auto parts makers also suffered, with Denso Corp,Koito Manufacturing Co Ltdand Exedy Corpdown
between 0.8 and 3.2 percent.
But Tokyo Electron Ltd
advanced 2.1 percent afterits second quarter orders came in at 75 billion yen ($959million), above market expectations of between 50 and 60 billionyen, traders said.
The broader Topixindex dropped 1.4 percent to717.18.
According to Thomson Reuters I/B/E/S, Japanese companies areforecast to post an average 57 percent year-on-year rise inearnings in 2012, down from an earlier estimate of 73 percentfour months ago, after a 23 percent year-on-year decline lastyear, when the country was hit by a massive earthquake andtsunami as well as a nuclear meltdown and fallout.
The benchmark Nikkei is up 2 percent so far this year,trailing a 14.6 percent rise in the S&P 500
and a 10.5percent gain in the pan-European STOXX Europe 600
But Japanese shares are slightly more expensive than theirEuropean peers, with a 12-month forward price-to-earnings ratioof 11.4 versus STOXX Europe 600's 11.1, data from ThomsonReuters Datastream showed. The S&P 500's 12-month forward P/Estands at 12.8.($1 = 78.1850 Japanese yen)
(Editing by Eric Meijer)
Keywords: MARKETS JAPAN STOCKS/