* Nikkei down 1.1 pct by midmorning
* Panasonic, Hitachi dive after cutting FY forecasts
* Exporters may have difficult time this year due to China worry
* Oil stocks outperform
By Ayai Tomisawa
TOKYO, Feb 4 (Reuters) - Japan's Nikkei share average fell to a one-week low on Thursday as a stronger yen hurt market sentiment, while bellwether companies such as Panasonic dived after cutting earnings forecasts.
Outperforming the market were oil shares, after a top U.S. Federal Reserve official tempered expectations on the pace of future U.S. interest rate increases, which hammered the dollar and lifted oil prices.
The Nikkei dropped 1.1 percent to 16,999.86 points by midmorning, after falling 3.2 percent on the previous day.
In early trade, the Nikkei slid as low as 16,941.88, the lowest since Jan. 28.
Traders said that investors have moved past the Bank of Japan's surprise move on Friday to adopt a negative interest rate policy, and are focusing again on worries about the global growth outlook.
The dollar was steady at 117.97 yen after dropping 1.7 percent overnight, hurting exporters.
Toyota Motor Corp dropped 2.2 percent and Nissan Motor Co fell 1.8 percent.
Investors were on edge after several Japanese companies cut their full-year forecasts.
"Manufacturers which have large exposures to China will likely suffer for a while," said Masaru Hamasaki, head of market & investment information department at Amundi Japan, adding that investors are expected to look into defensive shares this year.
"Many of the defensive stocks are already at expensive levels, so key is whether the country's fiscal policy can help domestic-demand sensitive companies further grow," Hamasaki said.
Panasonic Corp dived 8 percent after it forecast an operating profit of 410 billion yen ($3.42 billion) for the year ending March 31, down from a previous estimate of 430 billion yen. Panasonic depends on China for around 13 percent of its sales.
Hitachi Ltd, which generates about 22 percent of its revenue from China, plunged 10 percent after cutting its full-year operating profit forecast to 630 billion yen from an earlier 680 billion estimate.
Recently battered oil shares rose, with Inpex Corp <1605.T) climbing 1.7 percent and Japan Petroleum Exploration is rising 0.7 percent.
The broader Topix dropped 0.7 percent to 1,397.27 and the JPX-Nikkei Index 400 shed 0.6 percent to 12,608.88. (Editing by Kim Coghill)