* Car parts maker Tokai Rika sags after Toyota recall
* KDDI climbs after J.P. Morgan lifts price target
* Shin-Etsu Chemical rises after Nomura upgrade
By Dominic Lau
TOKYO, Oct 11 (Reuters) - Japan's Nikkei average fell to itslowest in two months on Thursday, losing ground for a thirdstraight day on mounting concerns that upcoming quarterlycorporate earnings will be weak after the U.S. results seasongot off to a slow start.
By the midday break, the Nikkei
had eased 0.2percent to 8,579.37 after falling as much as 8,514.63. Thebenchmark has lost 7.6 percent since hitting a four-month highon Sept. 19.
Printer and semiconductor production-related companiesrebounded after a recent battering on concerns over the outlookfor the PC market.
"People have chosen to come in to do a bit of short-coveringon some of the things that have been oversold," said a seniortrader at a European bank.
Advantest Corprose 6.4 percent after shedding 31percent from Sept. 19 to Oct. 10, while Canon Inc
gained 1.4 percent, snapping a five-session losing streak.Dainippon Screen Manufacturing Co Ltd
, which is down 39percent year-to-date, climbed 3.4 percent.
The broader Topix
index was flat at 717.08 in activetrade, with volume at 57 percent of its full daily average forthe past 90 days.
Ryota Sakagami, chief equity strategist at SMBC NikkoSecurities said market participants remained worried that thisearnings season was set to yield a slew of cuts to annualforecasts, as well as some negative surprises.
"However, if you look at the current prices of individualcompanies, they should have priced in downward revisions. Themarket is overreacting," he said, but added that the Nikkeicould fall as low as 8,250 in a worst case scenario.
SmartEstimates from Thomson Reuters StarMine showexpectations for an average negative earnings surprise fromNikkei 225 companies of 1.3 percent for July-September quarterlyresults.
The benchmark Nikkei is up 1.5 percent so far this year,trailing a 13.9 percent rise in the U.S. S&P 500
and a9.9 percent gain in the pan-European STOXX Europe 600
On Wednesday, the S&P 500 fell for a fourth day afterChevron Corp
said third-quarter profits would be"substantially lower" than the previous quarter, while Alcoa Inc
posted a quarterly loss and cut its outlook for globalaluminum demand.
Japanese automakers and parts suppliers were under pressureafter Toyota Motor Corp
said it would recall more than7.4 million vehicles worldwide for faulty power window switches.
The sector was already faced with concerns over the impactof sluggish global growth and anti-Japanese sentiment in Chinaover a territorial dispute between the two countries.
Car parts maker Tokai Rika Co Ltd
slumped 8.5percent after the recall by Toyota, which lost 1 percent, inline with a 1.1 percent fall in rival Nissan Motor Co
Other gainers included KDDI Corp
, which advanced2.4 percent after J.P. Morgan lifted its price target on themobile operator.
Shin-Etsu Chemical Co Ltd
added 1.7 percent afterNomura upgraded its rating on the company to 'buy' from'neutral' and lifted its price target.
(Editing by Edwina Gibbs and Joseph Radford)
Keywords: MARKETS JAPAN STOCKS/