* Fanuc, Tokyo Electron take hefty points off Nikkei
* Weak smartphone, chip demand take toll on exporters - analyst
By Ayai Tomisawa
TOKYO, July 29 (Reuters) - Japan's Nikkei share average edged down on Wednesday morning hit by sharp falls in Fanuc Corp and Tokyo Electron after they cut their full-year forecasts, while the market awaited a policy decision from the U.S. Federal Reserve.
The Nikkei share average dropped 0.4 percent to 20,240.37 in mid-morning trade after opening a tad higher.
The Fed ends a two-day policy meeting later in the day with markets divided on whether it will take a hawkish or dovish stance.
Traders said that investors were also cautious due to recent volatility in Chinese share markets.
Ranked the most traded stock by turnover, factory automation robot maker Fanuc Corp stumbled as much as 14 percent to 19,985 yen, the lowest since February. It cut its net profit forecast to 623.3 billion yen from a previously forecast 680.1 billion yen for the year through March, hit by slowing demand in the smartphone industry and uncertainty over corporate spending in China.
Tokyo Electron Ltd dived 11 percent to 6,593 yen, after it cut its full-year operating profit forecast to 95 billion yen from 112 billion yen.
Traders said that overall Japanese corporate earnings should show resilient results, but some companies serving the IT industry may suffer poor results going forward due to weak demand in chips and a slowdown in the Chinese economy.
"Companies which have smartphone businesses and other firms with high exposure to the Chinese market are a concern," said Masayuki Kubota, chief strategist at Rakuten Securities. "Either directly or indirectly, those factors seem to be hitting some Japanese exporters."
He also said that such concerns can cap the Nikkei's upside for the time being.
Fanuc and Tokyo Electron together shaved a hefty 132 points off the Nikkei, which is down 83 points.
Advantest Corp dropped 6.9 percent to 1,073 yen, the lowest since May 2014 after reporting worse-than-expected April-June results. Goldman Sachs, which maintains a 'sell' rating on the stock, said that although management maintained full-year forecasts, including an operating profit guidance at 15 billion yen, it still sees downside risk to the estimates.
Financials shares rebounded from the previous day's drops, with Mitsubishi UFJ Financial Group rising 0.8 percent and Mizuho Financial Group gaining 0.7 percent.
The broader Topix was flat at 1,629.49 and the JPX-Nikkei Index 400 was flat at 14,696.89. (Editing by Jacqueline Wong)