Nikkei hits 2-month low on corporate earnings concerns

* Nikkei drops 1.7 pct; Topix down 1.4 pct

* PC-related firms suffer on concerns about weak outlook

* Tokyo Electron rises after Q2 orders beat expectations

By Dominic Lau

TOKYO, Oct 10 (Reuters) - Japan's Nikkei average fell to atwo-month low on Wednesday on concerns that upcoming corporateearnings for the latest quarter would be hurt by sluggish globalgrowth, as the IMF cut its forecasts for the second time sinceApril.

SmartEstimates from Thomson Reuters StarMine expects averagenegative earnings surprises of 1.2 percent for theJuly-September quarter's results.

By the midday break, the Nikkei

shed 1.7 percent to8,621.06 after falling 1.1 percent on Tuesday.

"We have seen a lot of shorts being put out today," a seniordealer at a foreign bank said.

Automakers came under pressure after they confirmed sharpdeclines in September sales in China after a territorial rowbetween China and Japan sparked boycotts, raising concerns abouttheir future in the world's biggest auto market.

Toyota Motor Corpand Honda Motor Co

dropped 1.8 and 1.2 percent, respectively, while auto partsmakers also suffered, with Denso Corp

, Toyoda Goseiand Exedy Corpdown between 3.1 and 3.4percent.

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."

Companies with significant exposure to the PC market cameunder pressure after Intel Corp

, the world's largestsemiconductor maker, dropped 2.7 percent following negativereports by at least two brokerages, citing weak demand fornotebooks.

A weaker-than-expected third-quarter revenue estimate byU.S. chipmaker Intersil Corp

also weighed on thesector.Ibiden Co Ltd

, Shinko Electric Industries Co Ltd

, Nidec Corpand TDK Corpwere downbetween 1.9 and 4.4 percent.TOKYO ELECTRON SURPRISEBut Tokyo Electron Ltd

advanced 1.5 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 Topix

index dropped 1.4 percent to717.64 in relatively active trade, hitting 52 percent of itsfull daily average for the past 90 days.

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. Japanese firms posted a 23 percent year-on-yeardecline last year, when the country was hit by a massiveearthquake and tsunami and suffered the effects of a nuclearmeltdown 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 Jacqueline Wong)

((dominic.lau@thomsonreuters.com)(+81 3 6441 1917)(ReutersMessaging:)(dominic.lau.thomsonreuters.com@reuters.net))


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