Nikkei dips on earnings fears as slowdown fears persist

* Softbank falls, beaten by KDDI on sales of iPhone 5

* Sharp takes a tumble after Goldman Sachs downgrade

* Pharmaceuticals, real estate in demand

By Sophie Knight

TOKYO, Oct 9 (Reuters) - Japan's Nikkei share average dropped on Tuesday morning amid growing concern that companies will slash full year forecasts when they release quarterly earnings, after the World Bank warned China's slowdown may be more protracted than thought.

Mobile operator Softbank Corp

weighed on the market, sagging 2.8 percent after the Nikkei business daily said KDDI Corp

garnered more subscribers for the iPhone 5, partly because it allowed users to keep their phone numbers when switching carriers. KDDI gained 0.3 percent.

Rumours of a strike halting production of the smartphone at one of Apple Inc

's Chinese factories, though denied by the company, also weighed on major suppliers such as Murata Manufacturing Co Ltd

, which lost 2.8 percent. eAccess Ltd

, a mobile provider that Softbank has said it will acquire in a share swap worth more than $1.8 billion, gained 3.3 percent and was the second-most-traded stock on the main board by turnover. It reached 48,600 yen, edging closer to the 52,000 yen per share Softbank offer.

Also in favour were stocks of firms that make or deal in "induced pluripotent cells" or "iPS cells", after the two scientists who discovered them won a Nobel Prize.

Takara Bio Inc

, which makes the cells, was untraded with a glut of buy orders, while Shimadzu Corp , which develops equipment to culture the cells, advanced 1.2 percent.

Those gains helped the pharmaceutical sector


up 1.2 percent, softening the Nikkei's fall.

The benchmark edged down 0.4 percent to 8,831.31 by the midday break, with its drop also clipped by a rise of 2 percent for the real estate sector


"Recently land and rent prices have been strong, so real estate is lending support to the index," said Norihiro Fujito, general manager of investment at Mitsubishi UFJ Morgan Stanley.

"But there is a big downside for the market in the shape of China, which is pulling the Japanese market away from its correlation with the U.S. market."

Japanese companies have been issuing profit warnings as their sales take a hit from a double whammy of dwindling demand across China and a boycott of Japanese goods there because of a territorial dispute.

The World Bank warned that China's slowdown could yet worsen and cut its growth forecast to 7.7 percent from a May forecast of 8.2 percent.

Another factor behind profit warnings is the resilience of the Japanese currency, which may cause exporters to cut forecasts during the imminent earnings season, as many factored in an exchange rate of about 80 yen to the dollar during the last earnings season. The yen hovered at 78.29 on Tuesday morning.

"There will be more companies cutting their forecasts, particularly with the yen where it is," said Fumiyuki Nakanishi, general manager of investment and research at at SMBC Friend Securities.

Mizuho Financial Group

dropped 2.3 percent after the company said late on Friday that it would post a 173.7 billion yen ($2.2 billion) appraisal loss on its equity portfolio for the July-September quarter.

Elsewhere, Sharp Corp

sank 8.5 percent after Goldman Sachs cut the troubled consumer electronics company's rating to "Sell" from "Neutral" and slashed its target price to 120 yen from 175 yen.

The broader Topix lost 0.4 percent to 733.97 by the midday break. The Japanese market was closed on Monday for a national holiday. ($1 = 78.1600 Japanese yen) (Editing by Eric Meijer)

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