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TOKYO, Aug 31 (Reuters) - Japanese stocks tumbled amid profit taking on Monday as sentiment soured over soft domestic industrial output data and fresh uncertainty over when the U.S. Federal Reserve will begin to raise interest rates.
The Nikkei share average fell 1.3 percent to 18,890.48, snapping a three-day rebound that lasted through Friday. The benchmark index lost 8.2 percent in August, its biggest monthly decline since January 2014.
"We had a big recovery last week but it's now reversed so people are taking profits on shares that had a good bounce," said Nicholas Smith, a strategist at CLSA.
"Japan saw some of the biggest swings last week because it's such a liquid market, which makes it the natural place to go when there's a bit of chaos in Asia. So the last week was spent riding the wave of volatility and now people are starting to have a deeper think about what the fall in China really means for Japan."
Data showed Japan's industrial output unexpectedly fell 0.6 percent in July, in a sign that weak overseas demand and high inventories are weighing on production.
"Weak demand from China is expected to continue to weigh on Japan's production going forward so China worries may persist," said Masaru Hamasaki, head of market & investment information department at Amundi Japan.
Investors are eagerly awaiting Tuesday's release of surveys on manufacturing sector activity from the United States and China.
Data on U.S. auto sales and non-farm payrolls, due later in the week, will also be keenly watched for signs of the kind of economic strength that would support a September rate-hike by the Federal Reserve.
Advantest Corp and Japan Display each fell more than 4 percent after being excluded from the MSCI Japan Index along with Chiyoda Corp, which fell 2.6 percent.
China-related shares, such as steelmakers and machinery makers underperformed the market. Among them, JFE Holdings fell 3.3 percent while Komatsu dropped 2.9 percent and Daikin Industries 2.3 percent.
The broader Topix fell 0.8 percent to 1,537.05 and the JPX-Nikkei Index 400 lost 0.9 percent to 13,813.71. (Reporting by Joshua Hunt; Additional Reporting by Ayai Tomisawa; Editing by Jacqueline Wong)