* Futures-led selling caused by S&P downgrade
* Banks lower on procurement cost concern
* Canon sinks, Komatsu climbs after earnings
By Ayai Tomisawa
TOKYO, Jan 28 (Reuters) - The Nikkei average fell nearly 1 percent after a cut to Japan's sovereign debt rating, with some analysts saying the downgrade may become a turning point for foreigners who have led a rally for the benchmark since November.
Foreigners placed net sell orders for Japan stocks before the market opened.
Selling of Nikkei 225 futures also contributed to weakness in the cash market, where financial stocks led declines on concerns that they might be exposed to higher procurement costs.
"The rating reflects the country's current fiscal position, therefore funds that have been overweight on Japan since last November may reconsider their position," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
But Standard & Poor's cut to Japan's long-term debt rating by one notch to AA minus on concerns that the government lacked a coherent plan to tackle mounting debt, also led to broad losses for the yen, which lifted shares of exporters.
"Some exporters are benefiting from a weaker yen to some extent, so losses are likely to be small," said Yumi Nishimura, a senior market analyst at Daiwa Securities Capital Markets.
"But although the short-term impact may be limited, this is a start of long-term uncertainty over a serious fiscal problem."
The S&P move matched an earlier ratings cut by Fitch and raised concerns about the risks of downgrades for other developed economies.
The benchmark Nikkei was down 0.9 percent at 10,381.97. A support is seen around 10,350, analysts said.
The broader Topix fell 1.1 percent to 919.85.
Volume was on track to be in line with last week's daily average, with 972 million shares changing hands on the Tokyo stock exchange's first section.
Downbeat earnings also hurt the benchmark, with digital camera maker Canon Inc dropping 3.6 percent to 4,045 yen after operating profit for October-December was 10 percent lower than a year earlier.
Komatsu Ltd jumped 2.3 percent to 2,502 yen after the construction machinery maker said its net profit in the nine months to Dec. 31 surged more than five times from a year earlier to 100.6 billion yen ($1.2 billion) on strong sales in China and other emerging markets.
Banks underperformed, with Mitsubishi UFJ Financial Group falling 3.1 percent to 432 yen, Mizuho Financial Group dropping 3.1 percent to 169 yen and Sumitomo Mitsuo Financial Group shedding 2.3 percent to 2,851 yen.
"Although a downgrade of government debt is not in itself a big surprise, it's triggering concerns about banks' rising fund procurement costs," said Masahiko Sato, executive director of product marketing department at Nomura Securities. (Additional reporting by Takeshi Yoshiike and Antoni Slodkowski; Editing by Edwina Gibbs)