Japan's Nikkei falls as strong US data stokes fear of Fed turning more hawkish

By Kevin Buckland

TOKYO, Oct 18 (Reuters) - Japan's Nikkei share average fell on Wednesday after strong U.S. retail sales raised expectations for a more hawish Federal Reserve, while the risks around the conflict in Gaza continued to weigh on sentiment.

Better-than-forecast Chinese economic data late in the Asian morning helped Japan's stock benchmark to pare early losses initially, but sellers took back control heading into the midday recess.

The Nikkei entered the break down 0.21% at 31,974.29. Of its 225 components, 138 fell versus 83 that rose, with four flat.

The benchmark had been down as much as 0.54% mid-morning, and pared losses to about 0.1% immediately after China data showed beats for GDP, retail sales and industrial output, but the effect was short lived.

The broader Topix slipped 0.18%.

The consensus-topping U.S. retail sales data was accompanied by robust bank earnings, adding to mounting evidence of how well the economy has weathered the Fed's aggressive tightening campaign so far.

"The resilience, especially amongst households, is another sign the Fed may need to keep interest rates higher for longer to cool demand," said Kyle Rodda, senior financial markets analyst at Capital.com.

"The central bank could hike again, too."

A jump in crude oil prices - partly the result of simmering Middle East tensions - also scuppered overall sentiment.

However, commodity shares were standout winners, with Pacific Metals adding 2.94% and oil company Inpex up 2.83%.

Banks also gained with their U.S. peers. Corcordia Financial Group climbed 2.36%, Resona jumped 1.77% and Mizuho advanced 1.5%.

That helped a Topix index of value shares to end the morning flat, whereas the growth index slid 0.36%.

The Nikkei's top performer was Keisei Electric Railway , surging 5.76% after shareholder Palliser Capital said the company is trading at a large discount and has room to release value. (Reporting by Kevin Buckland; Editing by Rashmi Aich)