Nikkei drops on hawkish Fed, weak U.S. stock futures; earnings split market

By Kevin Buckland

TOKYO, Feb 15 (Reuters) - Japan's Nikkei share average fell on Wednesday in line with a decline in U.S. equity futures, as investors digested hawkish Federal Reserve comments following a U.S. inflation report.

A spike in U.S. bond yields overnight buoyed Japanese bank shares but hurt real estate stocks.

The Nikkei ended down 0.37% at 27,501.86, after gaining as much as 0.43% earlier in the session.

The broader Topix slipped 0.27% to 1,987.74, after earlier rising to 1,999.66, its highest level since Dec. 1.

Domestic earnings also continued to split the market, with internet company Recruit Holdings slumping 4.1% to be among the biggest drags, while online retailer Rakuten Group swung from an initial 3.8% drop to soar 7.7%.

Citizen Watch rallied for a second day on a share buyback plan, surging 9.2% to lead Nikkei gainers.

"Rakuten's financial results were certainly bad, but investors seem to think that maybe this is as bad as it will get and the company will be okay from here," said Masahiro Uchikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

"U.S. inflation is decelerating more slowly than expected, leading the market to think the peak in the current rate hike cycle is a little further away."

The volatile Japanese session followed a mixed day for Wall Street, with the Dow dropping about 0.5%, the tech-heavy Nasdaq up 0.7% and the S&P 500 about flat.

U.S. equity futures, though, pointed to a 0.5% decline at the restart.

U.S. consumer prices rose at a slower pace in January, but faster than economists' forecast. Both Philadelphia Fed President Patrick Harker and New York Fed President John Williams said overnight that the Fed still has work to do to combat inflation.

Of the Nikkei's 225 components, 107 rose, 113 fell and five were flat. (Reporting by Kevin Buckland; editing by Uttaresh.V and Rashmi Aich)