* If Nikkei falls further, lowest level since Oct 2014 in sight
* Strong yen triggers worries about Japan Inc's earnings
* Defensive firms with high dividend yields may outperform-trader
By Ayai Tomisawa
TOKYO, Feb 9 (Reuters) - Japan's Nikkei share average tumbled to a 2-1/2-week low on Tuesday morning, with banks taking the brunt of the sell-off, while a stronger yen dragged down stocks across the board.
The Nikkei dropped 4.6 percent to 16,226.29 in mid-morning trade, after sliding as low as 16,220.53, its lowest since Jan. 21. If it falls below 16,017.26, it will be the lowest since October 2014.
All of Topix's 33 subsectors were in negative territory. The broader Topix stumbled 4.3 percent to 1,320.65.
In overnight trade, European banks led a global sell-off in financial stocks as signs of stress in the sector mounted, triggering sharp selling in the beaten-down Japanese banking sector.
Mitsubishi UFJ Financial Group sank 7.2 percent, Sumitomo Mitsui Financial Group dropped 6.6 percent and Mizuho Financial Group shed 5.3 percent. Japanese banks have been under pressure with the Bank of Japan's negative interest rate policy introduced last month.
A slide in U.S. stocks added to investor concerns as uncertainty over whether the Federal Reserve would raise rates this year triggered selling in the dollar.
"Investors are increasingly worried about the U.S. economy, and they are worried that a strong yen will eat into Japanese exporters' earnings," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management. "Concerns about Japan Inc's earnings will likely persist this year."
During Asian trade, the dollar slid to 115.18 yen after earlier falling as low as 114.75 yen, its lowest against the yen since November 2014.
Exporters were hammered, with Toyota Motor Corp falling 4.5 percent, Honda Motor Co diving 5.3 percent and Nissan Motor Co tumbling 5.1 percent.
"When the strong yen is a concern, you would buy domestic-demand sensitive stocks like banks, but we can't buy them now so we are really struggling what to buy on a day like this," said Masashi Oda, senior investment officer at Sumitomo Mitsui Trust Bank, adding that cash-rich defensive companies with higher dividend yields will likely outperform for the time being.
As investors have become risk averse, securities firms were battered as well. Nomura Holdings nose-dived 9.6 percent while Daiwa Securities Group declined 4.8 percent.
The JPX-Nikkei Index 400 shed 4.3 percent to 11,920.24. (Editing by Jacqueline Wong)