Nikkei falls as China's slowing growth hurts sentiment; automakers buck weakness

* Markets with monetary easing options tend to outperform -
analysts
* Japan left with few ammunition in case of recession -
analyst
* Toyota, Honda outperform on report China shifts to hybrid
cars

By Ayai Tomisawa
TOKYO, July 16 (Reuters) - Japan's Nikkei fell on Tuesday as
slowing economic growth in China hurt investor sentiment, but
automakers outperformed on a media report that China will rely
more on hybrid vehicles.
The Nikkei share average .N225 dropped 0.7% to 21,526.21
points by midmorning. Japanese markets were closed on Monday for
a national holiday.
On Monday, China released data showing its economic growth
slowed to 6.2% in the second quarter, its weakest pace in at
least 27 years, as demand at home and abroad faltered in the
face of mounting U.S. trade pressure. While more upbeat June factory output and retail sales
offered signs of improvement, some analysts cautioned the gains
may not be sustainable, and expect Beijing will continue to roll
out more support measures in coming months.
Traders said that a slowdown in the world's second-largest
economy would make the performance gap between Japanese equities
and its peers even wider as Japan has little policy ammunition
left to support a faltering economy.
Japan's economy expanded an annualised 2.1% in the first
quarter but many analysts predict growth will slow in the coming
months as the U.S.-China row hurts exports.
"Markets whose central banks step up monetary easing tend to
outperform these days," said Norihiro Fujito, a chief investment
strategist at Mitsubishi UFJ Morgan Stanley Securities.
"While the Federal Reserve and the European Central Bank are
all loosening monetary policies to support their economies, the
Bank Of Japan is not left with much choices. Foreign investors
are aware of this so they are leaving Japan to shift their money
to the U.S. and emerging markets."
The Nikkei has gained 7.6% this year, while the S&P index
.SPX soared 20% and the European pan-region benchmark index
.STOXX gained 11%.
Investors sold futures, triggering index-heavy names such as
SoftBank Group 9984.T , FamilyMart 8028.T and Fanuc Corp
6954.T to fall 1.2%, 2.8% and 1.2%, respectively.
But automakers outperformed after the Nikkei business daily
reported that the Chinese government is set to shift its
automotive strategy to rely more on hybrid vehicles.
The Nikkei said the move is part of the country's efforts to
clean up the environment, instead of centring solely on electric
vehicles, a development likely to work in favour of Japanese
automakers such as Toyota Motor 7203.T and Honda Motor
7267.T .
Toyota rose 1.2%, while Honda shed 0.3%.
The broader Topix .TOPX dropped 0.6% to 1,566.58.

(Editing by Kim Coghill)