Japan's Nikkei erases early gain as Tesla, Fed worries weigh

By Kevin Buckland

TOKYO, March 2 (Reuters) - Japan's Nikkei share average flipped to a small loss in morning trading on Thursday, weighed down by a disappointing Tesla investor day and the risk of a more hawkish Federal Reserve.

The Nikkei lost 0.08% to 27,495.69 by the lunch break, reversing early gains of as much as 0.37%, although the benchmark index remained around the middle of its trading range of the past five weeks.

Tech was among the worst performing sectors, along with rate-sensitive real estate. Utilities were at the bottom, slumping 1.3%.

The broader Topix slid 0.11% to 1,996.61, with an index of growth shares down 0.32% versus a small gain for value shares.

Tesla shares slumped more than 5% in extended trading, dragging down U.S. stock index futures, after a highly anticipated plan for an affordable EV failed to materialise.

Investors were also spooked by a jump in U.S. Treasury yields to multi-month highs above 4% in Tokyo trading, as Fed officials sparred over whether high rates for longer would be enough to tame stubborn inflation or more aggressive tightening was needed.

Minneapolis Fed President Neel Kashkari said he was inclined "to push up my policy path" after a recent government report showed the Fed's preferred inflation index accelerated in January to a 5.4% annual rate, more than double the Fed's 2% target. Fed officials will submit new projections at a rate-setting meeting in three weeks.

S&P 500 E-mini futures were last down 0.4% and Nasdaq futures were 0.54% lower.

"There's no let-up in the hawkish lean in tone from Fed speakers of late," said Maki Sawada, a strategist at Nomura Securities in Tokyo.

"There's a fairly high probability that (Fed Chair Jerome) Powell will also adopt a relatively hawkish stance at this month's policy meeting that could rein in stock gains."

Chipmaking equipment giant Tokyo Electron was the Nikkei's biggest drag, shaving off 26 points with a 1.62% slide.

At the other end, Uniqlo store operator Fast Retailing provided the most support, adding 56 points with a 2.05% advance. (Editing by Subhranshu Sahu)