TOKYO, Sept 2 (Reuters) - Japanese stocks fell on Wednesday as concerns about China's cooling economy and further losses in Chinese stock markets demoralized investors, wiping out early gains.
The Nikkei lost 0.4 percent to 18,095.40 points, threatening to test last week's six-month low of 17,714.30 in an extremely choppy trading.
Stocks had firmed in early trade as investors looked for bargains after heavy selling drove the benchmark index to a six-month low last week.
While traders say levels below 18,000 would be attractive for pension funds and retail investors, turmoil in Chinese markets overwhelmed the market in the end.
Losses were led by China-related shares such as oil companies, steelmakers and shippers .
Daio Paper Corp. lost 17.9 percent, dragging down the Topix paper subindex after announcing it will issue 30 billion yen ($249.90 million) worth of euro-yen denominated convertible bond shares, prompting fears of dilution.
Rail shares outperformed, however, after Barclays upgraded ratings and target prices at a number of rail operators, lifting the Topix Land Transportation subindex 0.5 percent.
Hankyu Hanshin led the sector's gains with a 5.9 percent bump following its upgrade to 'overweight' from 'equal weight.' Central Japan Railway rose 1.9 percent on its upgrade to 'overweight.'
In a sign investors expect volatile conditions to persist, the Nikkei volatility index remained high at 37 percent.
The broader Topix index fell 0.8 percent to 1,465.99 and the JPX-Nikkei Index 400 lost 0.8 percent to 13,161.94. ($1 = 120.05 yen) (Additional reporting by Ayai Tomisawa; Editing by Kim Coghill)