* Nikkei loses 5.2 pct on week, worst weekly drop since July
* Charts look bearish for Nikkei, drops below Ichimoku cloud
* U.S. data fuels worries about pace of economic recovery
* Yen's strength vs euro, dollar pressures exporters
* Volume and turnover rise above 20-day average
By Masayuki Kitano
TOKYO, Oct 2 (Reuters) - Japan's Nikkei average slid to a two-month closing low on Friday on worries that the U.S. economy's nascent recovery may be losing momentum and as a rise in the yen hit exporters such as Tokyo Electron.
The sell-off was accompanied by a rise in volume, with 2.2 billion shares changing hands on the Tokyo exchange's first section, above the 20-day average of 1.9 billion shares..
A broad swathe of sectors fell, including transport equipment manufacturers, electrical machinery makers and financials.
Construction-related firms such as general contractor Kumagai Gumi tumbled on ongoing worries that public works projects could be halted under the new government led by the Democratic Party, which has pledged to cut wasteful spending.
"Investors are bracing for further falls in share prices from here," said Tsutomu Yamada, a market analyst for Kabu.com Securities.
Technical charts turned bearish for the Nikkei this week, Yamada said, adding that the benchmark index has broken below a trendline drawn from its March trough of 7,021.28 and through its July low of 9,050.33.
The benchmark may drop towards 9,500 next week, Yamada said.
The Nikkei fell 2.5 percent or 246.77 points to 9,731.87, its lowest close since July 22. The average slid 5.2 percent on the week for its biggest weekly drop in about three months.
The broader Topix dropped 2.4 percent to 874.67 on Friday.
"The Nikkei's fall is mostly related to the moves in the United States, but there are also some additional negative factors specific to Japan," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
"There are three issues: worries about the Democratic Party administration's policies, concerns that equity financing by banks may increase, and worries about yen strength," he said.
The Dow and S&P 500 suffered their worst one-day fall in three months on Thursday after economic reports fuelled fears about the recovery's strength.
The U.S. Institute for Supply Management's index of national factory activity fell in September from August's reading, and although the latest reading still indicated growth, it was below economists' forecast in a Reuters poll.
"For the last six months or so, the economy's recovery has had some momentum but you are starting to see that taper off," said Kiyoshi Noda, chief fund manager for MU Investments.
YEN'S ADVANCE HURTS EXPORTERS
The yen's rise to a 2-1/2-month peak against the euro was likely another factor weighing on Tokyo shares, Noda said.
Among exporters, Kyocera fell 3.4 percent to 7,850 yen and Tokyo Electron fell 4.3 percent to 5,320 yen.
The euro fell to as low as 129.65 yen on trading platform EBS on Friday, its lowest against the yen since mid-July.
The dollar was steady from late U.S. trading on Thursday at 89.57 yen.
The yen hit an eight-month high against the dollar of 88.23 yen on trading platform EBS earlier this week, and investors are fretting that the yen may be poised to gain further.
Many Japanese exporters have set their exchange rate assumptions for the dollar around 90-95 yen for the current fiscal year to March.
The impact of a stronger yen on earnings of exporter companies is a concern for market players as a stronger Japanese currency eats into exporters' repatriated profits.
Kumagai Gumi slid 4.6 percent to 62 yen.
Declining shares overwhelmed advancing ones by almost 12 to 1 on the Tokyo exchange's first section. (Editing by Chris Gallagher)