* Exporters under pressure after yen hits 2-mth high on dlr
* Retailers, defensive shares provide support
* Market unmoved on GM bankruptcy report, BOJ econ upgrade
By Aiko Hayashi
TOKYO, May 22 (Reuters) - Japan's Nikkei average dipped 0.4 percent on Friday, with Canon and other exporters hurt by a stronger yen, but falls were limited by continued optimism that economic fundamentals are improving.
Analysts said markets were not moved by the Bank of Japan's upgrading its assessment of the economy or a newspaper report about General Motors' possible bankruptcy filing, as these had largely been factored in.
Canon fell 1.9 percent to 3,170 yen and Sony Corp slipped 2 percent to 2,450 yen. Toyota Motor Corp retreated 2.2 percent to 3,570 yen.
"The only trading factor in Japan for now is a stronger yen. Worries about the financial system in Japan are not as grave as those in America," said Masaru Hamasaki, a senior strategist at Toyota Asset Management.
"The market has already neared a ceiling, though, based on hopes the economy will improve in the second half of this year as economic steps will likely start having an impact. Until that really happens and the economy improves even further, the ceiling will probably stay around 9,500 for a while."
In light trade, the benchmark Nikkei ended down 38.34 points at 9,225.81 after briefly turning positive.
On the week, it inched down 0.4 percent.
The broader Topix slipped 0.6 percent to 875.88.
The dollar fell as low as 93.86 yen on trading platform EBS, its lowest since mid-March, but was later trading around 94 yen. A stronger yen eats into exporters' profits when they are repatriated.
The dollar fell as worries about U.S. debt levels grew after Standard & Poor's warned there was a 1 in 3 chance the U.K. could lose its precious triple-A credit rating because of the danger government debt may soar near 100 percent of GDP.
The move raised fears that the United States, with its increasing budget deficit and weakened economy, could face the same situation, sending the dollar and Wall Street lower.
"We're seeing some consolidation after the markets rose a bit too fast. What's been happening this week globally is that markets have gotten a bit of a reality check on the state of the overall economy," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"The Nikkei's trend is unlikely to change unless the dollar really falls against the yen, and even the 93-94 yen level might still be all right. But a fall down to 90 yen could be very bad."
EXPORTERS DOWN BUT RETAILERS RISE
Support came from retailers, with Fast Retailing, the operator of the casual-clothing chain Uniqlo, adding 1 percent to 10,510 yen and Isetan Mitsukoshi rising 1.7 percent to 828 yen.
Defensive shares also climbed. Nippon Meat Packers gained 3.2 percent to 1,115 yen.
Some exporters rose on short covering, though the sector was mixed overall. Honda Motor Co advanced 2.5 percent to 2,710 yen.
Among other notable stocks, shares of Takara Bio, a maker of medicine and food using bio-technology, jumped 7.1 percent to 242,000 yen after the Nikkei business daily said the company plans to spend about 1 billion yen ($10.6 million) to build a cell engineering plant in Beijing this year.
Some 2.1 billion shares changed hands on the Tokyo exchange's first section, below last week's daily average of 2.5 billion.
Declining stocks outnumbered advancing ones, 983 to 582. (Additional reporting by Elaine Lies; Editing by Chris Gallagher)