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Nikkei falls as financials drag; Eisai indicated to dive

* Eisai expected to tumbled to daily limit-low

* Eisai's news reminds market of SanBio's crash - analysts

* Financials tumble as U.S. yields fall

By Ayai Tomisawa

TOKYO, March 22 (Reuters) - Japan's Nikkei fell in choppy trade on Friday as financial stocks languished, reflecting more cautious U.S. monetary policy, while the drug sector tumbled after Eisai and Biogen said they will end their Alzheimer's drug trials.

The Nikkei share average fell 0.2 percent to 21,563.09 points by the midday break, after flitting in and out of positive and negative territory. The broader Topix dipped 0.1 percent to 1,612.64.

Financial stocks faced a sell-off after the spread between the three-month Treasury bill yield and the 10-year note yield shrank to its narrowest level since August 2007 on Thursday in the wake of the U.S. Federal Reserve's decision to cease tightening monetary policy.

A narrower spread between the three-month and 10-year yields indicates increased market expectations of a recession.

"While financial stocks were under pressure on a sign of the slowing U.S. economy, investors are increasingly becoming risk-averse," said Takuya Takahashi, a strategist at Daiwa Securities.

Insurers and banks, which seek higher yielding products such as U.S. bonds, tumbled. T&D Holdings dropped 1.8 percent, Dai-ichi Life Holdings shed 2.0 percent and Mitsubishi UFJ Financial Group dropped 0.7 percent.

The drug sector was in the spotlight, diving 3 percent and was the worst performer on the board.

Eisai Co was untraded with a glut of sell orders but was indicated to tumble 17 percent to a daily limit low of 7,565 yen, after the drugmaker and its partner Biogen Inc said they are ending two trials of their experimental Alzheimer's disease drug aducanumab.

The news dragged down other pharmaceutical names such as Astellas Pharmaceutical, which dived 4 percent and Takeda Pharmaceutical, which fell 1.3 percent.

"It's a blow to hopes for new treatment as this Alzheimer's drug was one of the drugs which had been expected to succeed," said Yoshihiro Okumura, a general manager at Chibagin Asset Management.

He said that Eisai's news reminded the market of SanBio Co's crash in January, when investors were disappointed with news that it and Dainippon Sumitomo Pharma Co saw their joint drug's clinical trial in the United States did not succeed.

"There is a common point with SanBio's case whose shares had been rising on expectations but crashed," said Okumura, adding that its Alzheimer's drug's failure was a warning to investors that they should not be overly optimistic about drugmakers' research and development. (Editing by Kim Coghill)