Nikkei hits 3-1/2-wk lows on growth fears; banks down on lower Treasury yields

© Reuters. Nikkei hits 3-1/2-wk lows on growth fears; banks down on lower Treasury yields

TOKYO, Oct 4 (Reuters) - Japanese shares edged down on

Friday, with financials leading the losses, after a soft U.S.

service sector survey fanned growth worries and boosted the

safe-haven yen.

The downbeat U.S. economic news adds to a set of weak data

earlier in the week, and has deepened fears that the U.S.-China

trade war is starting to hurt growth in the world's biggest

economy.

The benchmark Nikkei average .N225 shed as much as 0.3% to

hit its lowest level since Sept. 9 and ended the morning session

at 0.1% lower at 21,321.99.

The index was on track to post the biggest weekly loss in

two months, down 2.6% so far this week.

The survey from the U.S. Institute for Supply Management

(ISM) showed its non-manufacturing activity index falling to the

lowest level in more than three years in September, and far

below expectations. The data sent the Treasury yields lower across maturities

and the dollar to one-month lows of 106.48 against the yen in

U.S. trade.

In Tokyo, financial stocks came under pressure, with banking

.IBNKS.T and insurance .IINSU.T sectors among the worst

performers, down 1.2% and 0.9%, respectively.

Lower U.S. interest rates squeeze banks' lending margins and

interest income as Japanese banks and insurance companies have

stepped up investments in the United States in recent years.

The broader Topix .TOPX fell 0.3% to 1,564.62 by the

midday break, with all but four of its 33 subindexes trading in

negative territory.

Still, many investors remained on the sidelines ahead of a

key U.S. jobs report that could help determine whether the

Federal Reserve cuts interest rates further.

The data due later on Friday are forecast to show the U.S.

economy added 145,000 new jobs in September, more than an

increase of 130,000 in the previous month.