* Nikkei falls near 3-month low, defensive shares hit
* Investors grow pessimistic on U.S.-China trade
By Hideyuki Sano
TOKYO, May 30 (Reuters) - Japan’s Nikkei share average dropped on Thursday, clinging near to three-month lows touched earlier this month on growing anxiety the trade dispute between the United States and China will be prolonged and damaging to the economy.
The Nikkei fell 0.85% to 20,824, not far from its May 14 intraday low of 20,751.
“A rebound around that level will lead to formation of a double-bottom and could underpin the market,” said Masayuki Doshida, senior market analyst at Rakuten Securities.
But a break below that line, which will take the Nikkei to the lowest levels since mid-February, will further impact already weak market sentiment, he added.
The broader Topix slumped 0.94% to 1,522.03, near a four-month low of 1,508 touched in mid-May.
Despite the downturn, the Japanese share market has fared better than many of its global peers. MSCI Japan has shed 4.1% so far in May, less than the 5.9% fall in MSCI ACWI.
Yet that was of little comfort to investors, who have become increasingly pessimistic that the United States and China could strike a trade deal on the sideline of a G20 summit meeting in late June.
“There will be limited hopes on any deals for the time being. It will be a prolonged fight,” said Tsuyoshi Shimizu, head of research group at Asset Management One.
Investor appetite remains subdued even as the dividend yield on Topix is reaching to highest levels in almost seven years at 2.54 percent
In strongly worded commentaries, Chinese newspapers warned on Wednesday that Beijing is ready to use rare earth elements to strike back in a trade war with the United States.
Defensive shares, including domestic demand-led companies, came under heavy selling in Thursday’s trade, with Astellas Pharma dropping 4.4% and Kao Corp, manufacturer of cosmetics, soaps and other chemical products, sliding 3.3%.
Recruit Holdings, one of a small number of shares that have posted gains so far this year, fell 2.3 percent while East Japan Railway shed 2.0%. .