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Japan's Nikkei at 5-month low as U.S. rate-hike bets, Ukraine tensions weigh

By Junko Fujita

TOKYO, Jan 25 (Reuters) - Japan's Nikkei index touched a five-month low on Tuesday, weighed down by investor caution over the situation in Ukraine and a potential faster-than-expected U.S. rate hike ahead of the Federal Reserve policy meeting due later in the day.

By 0213 GMT, the Nikkei share average fell 1.9% to 27,061.36, after dropping as much as 2.1% to 27,006.37, its lowest since Aug. 20. The broader Topix lost 2.02% to 1,891.00.

Wall Street bounced back from a steep sell-off to close higher overnight, with bargain hunters pushing the indexes into a positive territory.

Investors are keenly watching every move of the U.S. Fed as the central bank will begin its two-day meeting later on Tuesday, with investors starting to speculate that there is a small possibility that they will announce a surprise rate hike.

In a sign that geopolitical tensions are heating up, NATO announced it was putting forces on standby to prepare for a potential Russian invasion of Ukraine.

"Investors became cautious after seeing the steep falls on Wall Street last night, and they became even more sensitive to declines in U.S. futures today," said Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities.

"The market will remain like this until the FOMC (Federal Open Market Committee) is over but after tomorrow, with the earnings season kicking off, investors will start hunt for stocks with good earnings."

Technology stocks dragged the Nikkei lower, with start-up investor SoftBank Group losing 3.53%, chip-making equipment maker Tokyo Electron falling 2.36% and air-conditioner maker Daikin Industries dropping 2.58%.

All the 33 industry sub-indexes on the exchange were trading in the red, with shippers leading the losses with a 4.57% plunge.

Nihon M&A Center Holdings tanked 10% after the broker for mergers and acquisitions for small firms delayed its earnings announcement.

Defense-related stocks advanced amid tension between Russia and NATO, with Ishikawa Seisaku jumping 6.08% and Howa Machinery rising 0.77%.

(Reporting by Junko Fujita, additional reporting by Tokyo markets team; Editing by Sherry Jacob-Phillips)