Nikkei falls to 3-week low on profit-taking, soft tankan survey

* Japanese investors take profits on first day of 2015/16 * BOJ’s tankan softer than expected * Drugmakers and other recent gainers hit hardest By Hideyuki Sano TOKYO, April 1 (Reuters) – Tokyo shares fell on Wednesday as investors sold recent gainers to lock in profit on the first day of Japanese financial year and after soft reading on the Bank of Japan’s tankan business sentiment survey.

Both the Nikkei share average and the Topix fell below their 25-day moving average, a key short-term support level, clouding the outlook for the market that posted its biggest gain in five quarters in January-March.

The Nikkei fell as much as 1.5 percent to 18,927.95 points, its lowest in three weeks and falling below the 25-day average, which stood around 19,155, for the first time in two months.

It last stood at 19,035.65, down 0.9 percent on the day.

“We are at a watershed at the moment. A close below the 25-day moving average would probably lead to a near-term correction in the market,” said Takashi Oba, senior strategist at Okasan Securities.

Dampening market sentiment, the Bank of Japan’s tankan corporate sentiment survey showed big manufacturers plan to cut capital spending in coming months amid concerns about weak domestic and global demand.

Both big manufacturers and non-manufacturers expect business conditions to worsen slightly in the coming three months, the survey showed, suggesting that the economy’s recovery from a sales tax hike in April 2014 is not gaining traction.

“The tankan was a bit of negative surprise, showing little improvement in sentiment,” said Soichiro Monji, chief strategist at Daiwa SB Investments.

The data came after Wall Street shares tumbled on Tuesday on growing worries a strong dollar could bite into U.S. corporate profits.

In light of increasingly volatile U.S. stocks, Japanese investors booked profits from gains in Tokyo shares as their new financial year began on Wednesday, with recent gainers hit the hardest.

Drugmakers, the best performer in Jan-March , became the worst performing sector in the Tokyo bourse, dropping 2.2 percent.

Eisai, which gained a whopping 82.7 percent in the first quarter fell, 2.9 percent while Takeda Pharmaceutical dropped 2.8 percent.

Retail companies, another winner during the last quarter, fell 1.5 percent, with Seven&I Holding shedding 2.5 percent and Don Quijote Holding 3.7 percent.

Among exporters, Toyota Motor fell 2.0 percent and Nissan Motor dropped 2.1 percent.

The broader Topix dropped 0.9 percent to 1,528.99, falling below its 25-day average around 1,550. The JPX-Nikkei Index 400 fell 0.9 percent to 13,891.76.

(Editing by Kim Coghill)