* China factory survey dents sentiment further
* Strong yen hurts exporters
* Oil shares rise after oil prices gain
* Takata soars after Sankei says automakers are discussing support
By Ayai Tomisawa
TOKYO, Jan 4 (Reuters) - Japan's Nikkei share average tumbled to 2-1/2-month lows on Monday as weak China factory activity surveys and year-end losses on Wall Street discouraged investors on the first trading day of 2016.
China's factory activity contracted for the 10th straight month in December and at a sharper pace than in November, a private survey showed.
The Nikkei extended earlier losses after the news, falling as far as 2.7 percent to 18,518.60 points, its lowest level since Oct. 22.
"In early trade, domestic buyers seemed to be contributing to trimming the declines, but after the China survey was out, foreign investors' selling accelerated," said Yutaka Miura, a senior technical analyst at Mizuho Securities.
The dollar fell below 120.00 yen for the first time since late October, dragging down exporters. Toyota Motor Corp fell 1.3 percent, Honda Motor Co dropped 3.3 percent and Nissan Motor Co shed 2.2 percent.
On the other hand, oil shares outperformed as global oil benchmark Brent futures gained 3 percent after Saudi Arabia's execution of a prominent Shi'ite Muslim cleric spurred regional anger and geopolitical tensions.
Inpex Corp soared 3.8 percent and Japan Petroleum Exploration Co gained 1.7 percent.
Analysts say investors are focused on U.S. indicators this week such as manufacturing activity surveys for December and jobs data, which may give guidance on when the U.S. Federal Reserve will next raise interest rates.
Last month, the Fed raised the interest rate for the first time since 2006.
"In the near term, Japan's market performance may rely on these U.S. economic indicators," said Chihiro Ohta, general manager of investment research and investor services at SMBC Nikko Securities.
He said that from late January, Japanese companies' earnings for the Oct-Dec period will be in focus.
Bucking the weakness, Toshiba Corp rose 3 percent after the Nikkei business daily reported that a state-backed fund will help the firm rebuild its home electronics division and other operations by facilitating tie-ups with Sharp Corp and others.
Takata Corp jumped 18 percent after the Sankei newspaper reported that a coalition of automakers is discussing fresh financial support for the supplier.
Following the report, Honda said on Monday it was not considering fresh lending to Takata.
The broader Topix dropped 1.5 percent to 1,523.50 and the JPX-Nikkei Index 400 fell 1.7 percent to 13,718.34. (Editing by Kim Coghill)