* Stocks lower on signs Fed may cut balance sheet this yr
* Automakers and banks underperform
* Defense firm Ishikawa Seisakusho soars on N.Korea concerns
By Ayai Tomisawa
TOKYO, April 6 (Reuters) - Japan’s Nikkei share average tumbled to a four-month low on Thursday morning after U.S. shares tumbled overnight on signs the U.S. Federal Reserve may start cutting its king-sized balance sheet earlier than expected.
The Nikkei dropped 1.4 percent to 18,595.12 points by the midday break, the lowest since early December.
Investors were spooked by minutes of the Fed’s last meeting, which showed most policymakers thought the U.S. central bank should begin trimming its $4.5 trillion balance sheet this year.
The minutes also showed “some participants viewed equity prices as quite high relative to standard valuation measures.”
“We were hit by a bucket of cold water,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
“Signs that the Fed could pare its balance sheet is shocking enough, but the mood was exacerbated as the Fed touched upon stock valuations, which is very rare,” he added.
Automakers, which were already under pressure after weak March U.S. auto sales this week, extended their decline after the dollar fell 0.3 percent at 110.390 yen. Toyota Motor Corp dropped 0.9 percent and Nissan Motor Co Ltd tumbled 1.5 percent.
Banking stocks also lost ground, with Mizuho Financial Group Inc slipping 2.0 percent and Sumitomo Mitsui Financial Group Inc shedding 1.4 percent.
Investors were also wary ahead of a potentially tense meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping, the first between the world’s two most powerful leaders.
Meanwhile, defence equipment maker Ishikawa Seisakusho Ltd soared 15 percent to a daily limit high of 1,137 yen, the highest level since July 2015. Investors believe demand for the company’s defence equipment could surge as concerns escalate over North Korea.
Regional tensions have risen after North Korea test-fired a ballistic missile on Wednesday, just a day before the Trump-Xi summit, where North Korea’s arms development drive will take centre stage.
The broader Topix dropped 1.1 percent to 1,488.39 and the JPX-Nikkei Index 400 declined 1.1 percent to 13,327.02.
Editing by Randy Fabi