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* Futures and options settlement boosts liquidity
* Nikkei up 2.4 pct on week, poised to end 4-week losing streak
* Market may stay volatile ahead of Fed meeting - analysts
* Foreigners' 4-week net selling binge likely paused - analyst
By Ayai Tomisawa
TOKYO, Sept 11 (Reuters) - Japan's Nikkei share average fell in choppy trade on Friday morning as investors remained focused on the U.S. Federal Reserve's monetary policy meeting next week.
The Nikkei average dropped 0.5 percent to 18,199.98 in midmorning trade after traversing positive and negative territory. The index has risen 2.4 percent for the week, on track to snap a four-week losing streak.
This week saw extreme volatility in the market due to short-covering after investors accumulated massive short positions. Investors still remain on edge on worries about a slowdown in Chinese growth and its impact on the global economy, traders said.
Investors have also been nervous about next week's Fed meeting and whether it will decide to raise interest rates.
"We could still see volatile trading next week on speculation about the Fed rate hike," said Yutaka Miura, senior technical analyst at Mizuho Securities.
Miura said that investors are likely to continue unwinding their positions.
"Even if stocks jump, we don't know if and how long the rally will last so it's safe to reduce positions in an environment like this," Miura said.
Morning trade was choppy after futures and options settlements loaded up liquidity.
Japan's Nikkei 225 futures and options contracts expiring in September settled at the price of 18,119.49 on Friday, traders said.
During the first week of September, foreigners were net sellers of Japanese cash stocks for the fourth consecutive week, but the net selling value dropped to 481.7 billion yen, Japan Exchange Group data showed, down from 707 billion yen in the previous week.
"The 'selling binge' by foreigners has likely paused for the time being," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "Before the big event, most investors are on the sidelines."
Exporters were mixed, with Toyota Motor Corp falling 1.6 percent and Honda Motor Co declining 1.1 percent.
Domestic-demand related stocks such as banks, realtors and food processors outperformed, with Mizuho Financial Group rising 0.6 percent, Mitsui Fudosan Co gaining 1.3 percent and Kikkoman Corp jumping 2.7 percent.
Japanese Economics Minister Akira Amari said on Friday he strongly expects Chinese authorities to take steps to achieve stable and moderate economic growth.
He also said it is important to strengthen Japan's domestic demand to offset the risks posed by overseas developments.
The broader Topix dropped 0.3 percent to 1,475.79 and the JPX-Nikkei Index 400 shed 0.3 percent to 13,249.84.