Nikkei drops as strong U.S. jobs report stokes concerns about Fed rate hike

* Further slide in U.S. stocks negative, but strong dollar/yen may support Japan stocks – analyst * Japan’s weak GDP hurts sentiment * Japan Display soars after confirming plant investment By Ayai Tomisawa TOKYO, March 9 (Reuters) – Japan’s Nikkei share average fell on Monday after a strong U.S. jobs report stoked concerns that the Federal Reserve could raise interest rates sooner than expected, while weaker-than-expected domestic growth data also hurt sentiment.

The Nikkei dropped 0.9 percent to 18,797.77 points by midmorning, moving away from a 15-year high of 18,979.64 hit last Friday.

U.S. nonfarm payrolls increased 295,000 last month after rising 239,000 in January, and the unemployment rate dropped two-tenths of a percentage point to 5.5 percent, the lowest since May 2008, slipping into territory that some Fed officials consider consistent with full employment.

“There are concerns that U.S. stocks may fall further on concerns about the timing of a rate hike, and Japanese stocks may follow suit,” said Kazuhiro Miyake, a chief strategist at Daiwa Securities. “But unless investors become risk averse and buy the yen, losses may be limited in the Japanese market.” The dollar traded at 120.70, not far from Friday’s three-month high of 121.29. It was back near a 7-1/2 year peak of 121.86 set in December.

Data showed Japan’s economy grew less than initially reported in the fourth quarter as capital expenditure declined, in a worrying sign that a rebound in consumer spending is not encouraging business investment.

Index-heavy stocks languished, with Fast Retailing dropping 1.1 percent and SoftBank Corp shedding 1.3 percent, with both companies contributing a hefty negative 28 points to the Nikkei benchmark.

Exporters were mixed, with Toyota Motor Corp falling 0.2 percent and Fuji Heavy Industries rising 0.4 percent.

Bucking the weakness, Japan Display Inc jumped as high as 5.3 pct to a 1-1/2-week high of 501 yen after it confirmed that it would build a new $ 1.4 bln liquid crystal display (LCD) manufacturing plant.

The broader Topix dropped 0.6 percent to 1,531.92 and the JPX-Nikkei Index 400 shed 0.6 percent to 13,924.20.

(Editing by Kim Coghill)