Nikkei falls to 3-month low on intensifying trade war

* Up-down ratio shows market is oversold
* Market at 5% below Nikkei 25-day moving average
* China-related stocks volatile as short-sellers cover
positions
* Mothers, Jasdaq markets also slide

By Ayai Tomisawa
TOKYO, May 14 (Reuters) - Japan's Nikkei tumbled to a more
than a three-month low on Tuesday morning, as China defied
Washington by announcing retaliatory tariffs, dragging most
sectors into negative territory.
China said it would impose higher tariffs on $60 billion in
U.S. goods despite President Donald Trump's warnings not to
retaliate against additional tariffs on Chinese imports
announced by the White House on Friday. The Nikkei share average .N225 dropped 0.7 percent to
21,036.92 at the midday break, after falling to as low as
20,751.45, the lowest since mid-February. It is near downside
support at 20,756, 5% below its 25-day moving average, a level
considered to be oversold.
"Investors are concerned how much damage the trade war will
cause on Japan's real economy and financial market," said
Shusuke Yamada, vice president and chief Japan FX strategist at
Bank of America Merrill Lynch.
Automakers, shippers and banking shares tumbled. Mazda Motor
7261.T and Subaru Corp 7270.T both slid 3.1%, Mitsui OSK
Lines 9104.T fell 1.6% while Mizuho Financial Group 8411.T
dropped 0.9%.
But traders added that with signs of the market being
oversold, some short-term investors were buying back cyclical
stocks they had earlier shorted.
Manufacturers with large exposure to China were volatile,
with Komatsu Ltd 6301.T flat at 2,374.5 yen after slumping 4%
earlier, Fanuc Corp 6954.T was up 0.1% after dropping 2.9% in
early trade. Yaskawa Electric 6506.T rose 0.7% after sliding
4.5%.
The broader Topix .TOPX shed 0.8% to 1,529.44, after
falling to a more than four-month low of 1,508.85.
The toraku ratio, or up-down ratio, stood at 71. A level
below 80 signals an oversold market. The ratio is calculated by
dividing the 25-day moving average of stocks on the Tokyo Stock
Exchange's first section that gained by the 25-day average of
those that fell.
Small cap markets also lost ground, with Mothers .MTHR
sliding 2.1% and the Jasdaq market .JSD shedding 1.1%.

(Editing by Jacqueline Wong)