Nikkei slips on earnings fears, heads for 3rd day of losses

* 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 its lowest in two months on Thursday, losing ground for a third straight day on mounting concerns that upcoming quarterly corporate earnings will be weak after the U.S. results season got off to a slow start.

By the midday break, the Nikkei

had eased 0.2 percent to 8,579.37 after falling as much as 8,514.63. The benchmark has lost 7.6 percent since hitting a four-month high on Sept. 19.

Printer and semiconductor production-related companies rebounded after a recent battering on concerns over the outlook for the PC market.

"People have chosen to come in to do a bit of short-covering on some of the things that have been oversold," said a senior trader at a European bank.

Advantest Corp rose 6.4 percent after shedding 31 percent 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 39 percent year-to-date, climbed 3.4 percent.

The broader Topix

index was flat at 717.08 in active trade, with volume at 57 percent of its full daily average for the past 90 days.

Ryota Sakagami, chief equity strategist at SMBC Nikko Securities said market participants remained worried that this earnings season was set to yield a slew of cuts to annual forecasts, as well as some negative surprises.

"However, if you look at the current prices of individual companies, they should have priced in downward revisions. The market is overreacting," he said, but added that the Nikkei could fall as low as 8,250 in a worst case scenario.

SmartEstimates from Thomson Reuters StarMine show expectations for an average negative earnings surprise from Nikkei 225 companies of 1.3 percent for July-September quarterly results.

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 a 9.9 percent gain in the pan-European STOXX Europe 600


On Wednesday, the S&P 500 fell for a fourth day after Chevron 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 global aluminum demand.

Japanese automakers and parts suppliers were under pressure after Toyota Motor Corp

said it would recall more than 7.4 million vehicles worldwide for faulty power window switches.

The sector was already faced with concerns over the impact of sluggish global growth and anti-Japanese sentiment in China over a territorial dispute between the two countries.

Car parts maker Tokai Rika Co Ltd

slumped 8.5 percent after the recall by Toyota, which lost 1 percent, in line with a 1.1 percent fall in rival Nissan Motor Co


Other gainers included KDDI Corp

, which advanced 2.4 percent after J.P. Morgan lifted its price target on the mobile operator.

Shin-Etsu Chemical Co Ltd

added 1.7 percent after Nomura upgraded its rating on the company to 'buy' from 'neutral' and lifted its price target.

(Editing by Edwina Gibbs and Joseph Radford)

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