* Nikkei finds support around 25-day moving average
* Yahoo Inc may transfer 35 pct Yahoo Japan stake to Softbank
* Yahoo Japan up 4.3 pct, Softbank down 2.4 pct
* Sharp drops 4.4 pct on brokerage downgrade
By Antoni Slodkowski
TOKYO, March 2 (Reuters) - Japan's Nikkei average was poised to snap a three-day winning streak on Wednesday, pushed down by concerns that rising oil prices will hurt the global economic recovery.
But Yahoo Japan surged 4.3 percent to 32,500 yen after sources said Yahoo Inc is in advanced talks to wind down its joint venture in Japan with Softbank Corp.
Market players also said that as this week's rebound has been unexpectedly rapid, selling pressure has emerged, especially after Wall Street indexes shed over 1 percent.
Oil vaulted over $116 per barrel on Wednesday as concerns rose that escalating tensions in Libya would spread in the Middle East and disrupt fuel supplies.
"The market at this stage looks solid, but we had big buying in futures in the last two days, so if it decisively breaks below support around the 10,580-10,600 level we could see big selling in futures trickling into the cash market, pushing the Nikkei much lower," said Mitsuhsige Akino, a fund manager at Ichiyoshi Investment Management.
By the midday break the benchmark Nikkei had dropped 1.6 percent, or 170.07 points, to 10,583.96 and the broader Topix lost 1.3 percent, to 951.06. Support for the Nikkei stood at its 25-day moving average of 10,586.
"Fundamentals haven't changed much, but rapid oil moves on developments in the Middle East are likely to shake markets up and down for quite some time yet," said Akino.
YAHOO STAKE
A deal to transfer Yahoo's 35 percent stake in Yahoo Japan to telecommunications company and investor Softbank could come within a few weeks, people with knowledge of the discussions said. The public value of the stake is just under $7.5 billion.
"Investors may be assuming that there will be a premium to the current Yahoo Japan share price when they are sold," said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan.
"If the deal is finalized, it means that Yahoo Japan will completely be under Softbank's umbrella. While Softbank focuses on its mobile phone business, Yahoo Japan will likely strengthen its Internet and cell phone content businesses so there will likely be synergy."
Softbank Corp, which has a 3.8 percent weighting in the Nikkei -- one of the biggest in the Tokyo market -- lost 2.4 percent to 3,295 yen and was the most actively traded stock by turnover on the Tokyo Stock Exchange's main board.
Brent crude's dizzying 15 percent jump in less than two weeks has fanned worries about a stifling impact on the economic recovery, pushing investors out of stocks and sending them to relatively safe assets such as gold and government bonds.
Inpex Corp Japan's largest oil and gas developer gained 1.2 percent to 583,000 yen on oil prices, becoming the second biggest gainer among the Nikkei 225 components.
Analysts said that despite Wednesday's fall in the near-term bulls will still be ready to buy on dips as the factors that have fuelled a rally of about 15 percent since November -- excess liquidity, stronger corporate earnings and hopes for further recovery in the U.S. economy -- remain largely intact.
"That's why the Nikkei is likely to limit losses towards the end of the session today," said Mitsuo Shimizu, deputy general manager at Cosmo Securities.
"Broadly speaking, foreign sentiment towards Japan stocks also hasn't changed so far and Japan shares are relatively cheap, so the market will probably post further gains in the near term," Shimizu said.
Sharp Corp lost 4.4 percent to 850 yen, the most on the Nikkei, after Morgan Stanley MUFG Securities cut its rating to "equal-weight" from "overweight".
Morning trading volume on Wednesday was moderate with 1.0 billion shares changing hands on the Tokyo bourse's first section, suggesting that the day's total will likely come in below last week's daily average of 2.37 billion. (Editing by Joseph Radford)