* Nikkei is down 8.5 pct for the month
* Short-selling ratio hits fresh record high on Tuesday
* Japan Tobacco dives as deal seen expensive - traders
By Ayai Tomisawa
TOKYO, Sept 30 (Reuters) - Japan's Nikkei share average rebounded on Wednesday after tumbling in the previous day, with strength in exporters and financials offsetting weak industrial production and a sharp drop in Japan Tobacco.
The Nikkei rose 2.0 percent to 17,268.80 points by midmorning trade after stumbling 4.1 percent on Tuesday to the lowest closing level since mid-January on fears of slowing global growth.
For the month, it is poised to post more than an 8.5 percent drop, the biggest monthly decline since January 2014.
Analysts said most investors were staying on the sidelines before key economic data later in the week.
The Bank Of Japan's tankan survey and Chinese Purchasing Managers' Index (PMI) are on Thursday, while the U.S. jobs data is due out on Friday.
Meanwhile, the short-selling ratio on Tuesday hit a record high of 43.4, according to the Japan Exchange Group.
"It's a technical rebound today, and the rout seems to have paused for now. But the factory data became a market concern," said Chihiro Ohta, general manager of investment research and investor services at SMBC Nikko Securities.
He said that weak production clouds Japan's economic outlook, and markets are focused on whether companies remain upbeat about their full-year forecasts.
Japan's factory output unexpectedly fell for the second straight month in August, the latest in a string of weak indicators which suggest the world's third-largest economy is struggling to regain traction after it shrank in April-June.
But the anaemic performance also has kept policymakers under pressure to offer fresh stimulus to stoke growth, providing some support for stocks.
Most sectors were in positive territory, with exporters and financials gaining ground.
Toyota Motor Corp gained 3.1 percent and Sony Corp soared 4.1 percent. Mitsubishi UFJ Financial Group added 2.2 percent and Dai-ichi Life Insurance soared 4.5 percent.
Bucking the strength, Japan Tobacco Inc plunged 10 percent after it agreed to buy brand rights for Reynolds American Inc's unit Natural American Spirit tobacco business outside the United States for 600 billion yen.
Traders said that the deal was seen as too expensive.
"The 600 billion yen may be worth if it includes the U.S. business," said a fund manager at a Japanese asset management firm, who holds JT stocks but on underweight as the company's high exposure to Russia remains a concern.
The broader Topix gained 2.1 percent to 1,404.80 and the JPX-Nikkei Index 400 advanced 2.1 percent to 12,574.88. (Editing by Kim Coghill)