Japan's Nikkei stock average lost 2.9 percent on Monday, briefly touching its lowest point since May 1, as Sony Corp and other exporters fell in the wake of an advancing yen.

Panasonic dropped 7.8 percent after it forecast a bigger-than-expected annual loss following a record quarter of red ink, battered by weak demand, price falls and restructuring costs.

Chugai Pharmaceutical rose on hopes for strong sales of the Tamiflu flu drug after the number of HIN1 flu cases climbed among Japanese who had not been abroad, but market analysts said worries about the impact of the virus on Japan's economy also gave investors an excuse to take profits.

The yen sank 0.6 percent to 94.61 yen on growing worries about risk after Wall Street closed weakly last week. Given that many exporters have set their currency rate at 95 yen, we're now getting to a worrisome level, said Takashi Ushio, head of the investment strategy division at Marusan Securities.

Investors fret about a stronger yen as it eats into profits made abroad when repatriated.

We're also seeing investors taking profits, using the potential economic impact should the flu situation get a lot worse as an excuse, Ushio added.

But other analysts said the slide was mainly a reaction to Wall Street's Friday losses, noting that the Nikkei hit six-month highs last week after gaining sharply and that a slight correction was not surprising.

A batch of U.S. economic reports on Friday reinforced hopes that the recession may be easing, but falling oil prices dragged down energy shares and the rest of Wall Street with them.

Oil edged lower after falling nearly 4 percent on Friday as dealers became increasingly pessimistic about the outlook for global energy demand.

Recent economic indicators show that the worsening of the economy appears to have stopped, but now we need to see signs of recovery or it'll be difficult for stocks to rise decisively, said Yoku Ihara, a manager at the investment information department of Retela Crea Securities.

The benchmark Nikkei lost 264.67 points to 9,000.35 after falling as low as 8,997.74, its lowest since May 1. The broader Topix fell 2.7 percent to 857.52.

EXPORTERS HIT

Orders for Japanese stocks placed through 10 foreign securities houses before the start of trade on Monday showed that foreign brokers were set to be net buyers of 2.8 million shares.

Analysts noted that the Nikkei's 25-day moving average now comes in at about 8,954 and could provide support, but that this depends on whether the yen's advance against the dollar is halted or not.

Exporters battered the tech- and exporter-heavy Nikkei. Canon Inc lost 5.7 percent to 3,120 yen, Kyocera Corp lost 2.5 percent to 7,310 yen and Sony tumbled 6 percent to 2,415 yen. Industrial robot maker Fanuc lost 3.9 percent to 7,430 yen. Toyota Motor Corp fell 3.1 percent to 3,480 yen and Honda Motor Co shed 3.6 percent to 2,665 yen.

Oil's tumble weighed on resource-linked shares, with oil and gas field developer Inpex losing 4.4 percent to 667,000 yen and Mitsubishi Corp, Japan's largest trading house, losing 2.8 percent to 1,620 yen. But Chugai, which distributes Tamiflu through its partnership with developer Roche, bucked the trend to rise 4.6 percent to 1,848 yen, becoming the biggest contributor to the Nikkei 225 by volume weight.

Fujibo Holdings, which makes medical masks, soared 30.3 percent, or by its daily limit, to 129 yen.

Trade was thin, with 1 billion shares changing hands on the Tokyo exchange's first section, lower than last week's morning average of 1.2 billion.

Declining shares outpaced advancing shares by nearly 5 to 1.

(Reporting by Elaine Lies; Editing by Joseph Radford)

Japan Tokyo Stock Exchange Nikkei 225 Fall