* Sony, Mazda fall on weak euro * Tosoh rises on a report about its Li-ion batteries * Cautious mood over Japan-U.S. summit * Financials retreat after recent gains By Ayai Tomisawa TOKYO, Feb 22 Japan's Nikkei share average fell for a second day on Friday on worries about the U.S. and euro-zone economies, dragging down euro-sensitive shares such as Sony Corp and Mazda Motor Corp. The Nikkei fell 0.5 percent to 11,252.41 by the midday-break, retreating from a 52-month high of 11,510.52 hit on Wednesday. Investors were cautiously watching to see if the United States backs Japan's plans to revive its economy, while uncertainty around this weekend's Italian elections also capped demand. "Investors are watching how the long-term interest rates, CDS spreads and the euro will move after the election. Now that the Nikkei has hit a new high and tested the 11,500-line (earlier this week), the market is vulnerable to profit-taking triggered by negative overseas factors," said Nobuhiko Kuramochi, a strategist at Mizuho Securities. Exporters with high exposures to the euro zone economy tumbled, with Mazda Motor Corp falling 1.9 percent and Sony Corp shedding 2.7 percent after business activity indexes dealt a blow to hopes the euro zone might emerge from recession soon, showing the downturn across the region's businesses unexpectedly grew worse this month. Japanese Prime Minister Shinzo Abe meets U.S. President Barack Obama in Washington on Friday, seeking to put a strong alliance on display and looking for support for his economic revival policies of big spending and hyper-easy monetary policy. "Investors will be watching headlines out of the meeting, and they are highly sensitive to what they would mean to the Japanese economy," said Hiroichi Nishi, an assistant general manager at SMBC Nikko Securities. The broader Topix dropped 0.9 percent to 954.42 in thin trade, with 1.58 billion shares changing hands by the midday break. It is poised to post a low daily trading volume compared with last week's daily average volume of 4.03 billion shares. Financials, beneficiaries of Abe's reflationary policy, lost ground. Mizuho Financial Group dropped 2.0 percent, Mitsubishi UFJ Financial Group slipped 2.5 percent and Sumitomo Mitsui Financial Group fell 2.4 percent, being among four most traded stocks by turnover on the board. Some of the bigger exporters were also sold off, with Toyota Motor Corp falling 1.9 percent, Honda Motor Co dropping 1.2 percent and Nikon Corp shedding 2.0 percent. Nikko Securities' Nishi said that market sentiment was also undermined by worries over how long the U.S. Federal Reserve will keep its quantitative easing in place. In the United States, a series of data from jobless claims to factory activity and consumer price inflation pointed to slow economic growth and supported the argument for the Fed to maintain its monetary stimulus. Analysts said that most investors were also holding fire until the nomination of a new Bank of Japan governor next week. Bucking the broader market, Tosoh Corp jumped 5.6 percent after the Nikkei business daily reported the chemical maker had developed materials that can prevent lithium-ion batteries from bursting or catching fire under extremely hot conditions. The report said that with Boeing Co 's 787 Dreamliner grounded due to problems with its lithium-ion batteries, Tosoh's newly developed materials could gain attention as a possible solution.
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