Nikkei falls as China slowdown saps confidence; automakers buck weakness

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* Markets with monetary easing options tend to outperform -analysts

* Japan left with few ammunition in case of recession -analyst

* Toyota, Honda outperform on report China shifts to hybridcars

TOKYO, July 16 (Reuters) - Japan's Nikkei fell on Tuesday asinvestors worried about slowing economic growth in China, butautomakers outperformed on a media report that China will relymore on hybrid vehicles.

The Nikkei share average .N225 ended 0.7% lower to21,535.25. Japanese markets were closed on Monday for a nationalholiday.

On Monday, China released data showing its economic growthslowed to 6.2% in the second quarter, its weakest pace in atleast 27 years, as demand at home and abroad faltered in theface of mounting U.S. trade pressure. urn:newsml:reuters.com:*:nL4N24G0MX

While more upbeat June factory output and retail salesoffered signs of improvement, some analysts cautioned the gainsmay not be sustainable, and expect Beijing will continue to rollout more support measures in coming months.

Traders said that a slowdown in the world's second-largesteconomy would make the performance gap between Japanese equitiesand its peers even wider as Japan has little policy ammunitionleft to support a faltering economy.

There are worries Japan's economy will remain underpowered,and slow further, as the U.S.-China row hurts exports.

"Markets whose central banks step up monetary easing tend tooutperform these days," said Norihiro Fujito, a chief investmentstrategist at Mitsubishi UFJ Morgan Stanley Securities.

"While the Federal Reserve and the European Central Bank areall loosening monetary policies to support their economies, theBank Of Japan is not left with much choices. Foreign investorsare aware of this so they are leaving Japan to shift their moneyto the U.S. and emerging markets."

The Nikkei has gained 7.6% this year, while the S&P index .SPX soared 20% and the European pan-region benchmark index .STOXX gained 11%.

Investors sold futures, triggering index-heavy names such asSoftBank Group 9984.T , FamilyMart 8028.T and Fanuc Corp6954.T to fall 1.2%, 2.7% and 1.5%, respectively.

But automakers outperformed after the Nikkei business dailyreported that the Chinese government is set to shift itsautomotive strategy to rely more on hybrid vehicles.

The Nikkei said the move is part of the country's efforts toclean up the environment, instead of centring solely on electricvehicles, a development likely to work in favour of Japaneseautomakers such as Toyota Motor7203.T and Honda Motor7267.T .

Toyota rose 1.3%, while Honda shed 0.4%.

The broader Topix .TOPX dropped 0.5% to 1,568.74. (Editing by Kim Coghill & Shri Navaratnam) ((ayai.tomisawa@thomsonreuters.com; 81-3-6441-1875; ReutersMessaging: ayai.tomisawa.thomsonreuters.com@reuters.net))

This article appears in: Stocks , World Markets , Politics

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