Japan's Nikkei stock average lost 1.2 percent on Thursday, with Honda Motor Co <7267.T> and other exporters down as the yen climbed to a 2-month high on the dollar and after the Federal Reserve cut its outlook for the U.S. economy. Tech shares fell in the wake of losses by their U.S. peers, with Sony Corp <6758.T> dropping 1.6 percent, despite saying it plans to halve the number of its parts and materials suppliers.

The dollar extended losses made the previous day to fall 0.4 percent to 94.43 yen, after the Fed said it considered buying more securities at its last policy meeting -- a move that would inject more dollars into the financial system.

This is hitting exporters and high-tech shares, and a dollar fall toward 93-94 yen is starting to look possible, dampening interest in exporters, said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

The big issue is whether the yen is really heading into a rising trend or not.

Investors fret about a stronger yen because it eats into exporters' overseas profits when repatriated.

Market analysts said the Federal Reserve's gloomy views on the economy, which included cutting its 2009 gross domestic product forecast and raising its outlook for unemployment, were contributing to an overall uncertain mood.

We're now at a point where the market's trying to make up its mind whether to go up or down, and for a recovery we need to start seeing signs of improvement in the real economy, said Noritsugu Hirakawa, a strategist at Okasan Securities.

But market participants also said that sharp falls are unlikely at this point, with support for the Nikkei around 9,000 -- where the 25-day moving average currently comes in.

The benchmark Nikkei <.N225> lost 140.63 points to 9,235.15, while the broader Topix <.TOPX> fell 1 percent to 877.06.

SONY, EXPORTERS

The plan by Sony, which expects a second straight year of losses, came in addition to a current plan to cut fixed costs by more than 300 billion yen ($3.2 billion).

Osakabe said the move didn't come as much of a surprise given the company's push to reduce expenses as it grapples with weak global demand for consumer electronics and the strong yen.

While the move will of course hit suppliers hard, it's probably just part of its overall restructuring and cost-cutting efforts -- and there are limits to how much costs can be reduced by cutting jobs, he added.

Among exporters, Honda fell 2.6 percent to 2,615 yen and Canon Inc <7751.T> lost 3 percent to 3,210 yen. Toyota Motor Corp <7203.T> fell 2.2 percent to 3,580 yen.

Tech shares were hit by a double punch of the yen's advance and a fall in U.S. tech shares after a negative outlook for 2009 from Hewlett-Packard .

Kyocera Corp <6971.T> lost 1.4 percent to 7,280 yen and TDK Corp <6762.T> lost 2.1 percent to 4,260 yen.

But support came from shares in smelters after the Nikkei business daily said Mitsubishi Materials <5711.T>, Japan's third-largest copper smelter, would resume full production in August in response to an uptick in demand from domestic automakers.

Mitsubishi Materials gained 3.8 percent to 300 yen and Sumitomo Metal Mining <5713.T> rose 2.3 percent to 1,260 yen. Dowa Holdings <5714.T> rose 2.7 percent to 415 yen.

Makers of medical masks and the cloth used in them rose after the first cases of H1N1 flu were reported in the densely populated Tokyo area on Wednesday.

Fujibo Holdings Inc <3104.T> rose 4.4 percent and Shikibo <3109.T> gained 11 percent to 202 yen.

Trade was thin, with 1 billion shares changing hands on the Tokyo exchange's first section compared to last week's morning average of 1.2 billion.

Declining shares outnumbered advancing ones by more than 2 to 1.

(Reporting by Elaine Lies; Editing by Edwina Gibbs)

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