* Index plunges 28 points to -44 in June, lowest since Feb
* Sentiment hurt by stronger yen amid Europe debt crisis
* Investors concerned euro zone impact to continue
* Support for ruling party jumps after PM Kan takes helm
By Chikafumi Hodo and Mari Terawaki
TOKYO, June 18 (Reuters) - Japanese retail investor sentiment towards domestic stocks sank to its lowest level in four months in June as worry about the euro zone's debt troubles hammered Tokyo shares and pushed the yen sharply higher, a Reuters survey showed.
The monthly poll also showed a jump in support for the governing Democratic Party of Japan (DPJ) after it chose Prime Minister Naoto Kan to replace unpopular Yukio Hatoyama, with 42 percent of respondents saying they would vote for the DPJ in July's upper house elections.
Retail investor sentiment had turned positive for the first time since July 2007 only two months ago but has since plunged due to fears that Europe's debt crisis would affect other economies, and investors braced for further fallout ahead.
"Worsening sovereign risk in Europe is going to have a bad effect on the economy. This is expected to continue for a while," said an investor in his 60s.
The Reuters sentiment index, calculated by subtracting the percentage of investors who say they are bearish from those who are bullish, plunged 28 points to minus 44 in June -- the lowest reading since February.
Sentiment towards all sectors worsened in June, notably a 22-point fall in the materials sector and a 16-point drop in the IT and hi-tech space.
The survey of 887 respondents was conducted June 7-10, during which time the benchmark Nikkei average fell to a six-month low of 9,378.23. The Nikkei has dropped 16 percent since reaching an 18-month high of 11,408.17 in April.
Many investors said they were concerned about the strength of the yen, which surged more than 10 percent against the euro last month. A stronger yen erodes exporters' earnings when repatriated and hurts their sales competitiveness overseas.
"It's difficult to be bullish as the yen's strong trend could hurt corporate earnings, which have been showing signs of improvement," an investor in his 50s said.
On the political front, the ruling Democrats reclaimed the top spot in support among retail investors. The poll showed that 42 percent of respondents would vote for the DPJ in next month's upper house elections, a 16-percentage-point jump from last month's poll after Kan took the helm as prime minister.
The Your Party, a reformist party launched last year, slipped to second place with 24.5 percent, down more than 10 points from May. The party had been in the No.1 spot the previous two months.
Retail investors said they wanted the government to take measures to boost the economy.
The survey showed that 39 percent of respondents said the government's top priority was to take economic stimulus measures, followed by 11 percent who favoured steps to beat deflation.
The monthly poll, which is conducted anonymously, aims to capture the views of readers of an online magazine aimed at users of the Reuters Japan website http://www.reuters.co.jp (Reporting by Chikafumi Hodo; Editing by Chris Gallagher)