Japanese shares fall as banks track US peers lower, yen gains also weigh

TOKYO, Oct 17 (Reuters) - Japanese shares fell on Friday, dragged by financial stocks which tracked sharp declines in U.S. regional banks, while a stronger yen also hurt sentiment.

As of 0148 GMT, the Nikkei .N225 was down 0.5% at 48,044.41, after falling more than 1% decline earlier in the session.

The broader Topix .TOPX dipped 0.43% to 3,189.71.

Wall Street stocks ended lower as declining financial shares and simmering Sino-U.S. trade tensions dampened investor sentiment, with Zions Bancorporation ZION.O tumbling 13% after the regional bank disclosed an unexpected loss on two loans in its California division. .N

Japanese banks fell, with Mitsubishi UFJ Financial Group 8306.T and Sumitomo Mitsui Financial Group 8316.T falling more than 2% each.

The Topix banking index .IBNKS.T lost more than 2.18%, the second worst performing index after the insurance sector .IINSU.T, which lost 2.59%.

Technology investor SoftBank Group 9984.T, which drove the Nikkei's latest rally, lost 2.8% to become the biggest drag on the Nikkei.

The Nikkei saw a roller coaster move this week over political uncertainties, with the index slipping 2.6% on Monday following the departure of the Liberal Democratic Party's long-term partner Komeito from the coalition.

The index recovered the losses, rising nearly 3% in the previous two sessions after a small opposition emerged as a possible coalition partner for the LDP.

The index is set to lose 0.37% for the week.

"Japan's market showed signs of overheating in past sessions and some investors feared that it could peak anytime," said Takamasa Ikeda, senior portfolio manager at GCI Asset Management.

Ikeda, who was looking for cues to book profits, sold all of his long position in the Nikkei futures on Friday last week after seeing signs of weakness in U.S. shares.

"And the news about the Komeito's departure broke," he said.

Uniqlo-brand owner Fast Retailing 9983.T reversed early losses to trade 0.19% higher, becoming the biggest support for the Nikkei.