TOKYO, Nov 30 (Reuters) - Japan's Nikkei average on Tuesday extended losses to fall 1.4 percent, moving further away from a five-month closing high marked the day before as a liquidity squeeze hit Chinese shares.
Analysts said a shortfall of cash in China's domestic money market had spilled over to the stock market, prompting selling from retail investors, already on edge about whether the central bank would introduce further tightening measures. [.SS]
"Media reports about China's potential rate hikes appear to be hurting Shanghai stocks, and that's pressuring Japanese stocks," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.
"Falls will likely be limited to around these levels, but if Chinese stocks drop further and dollar/yen falls to around the middle of the 83-84 yen range, that could be a different story."
By early afternoon trade, the Nikkei <.N225> fell to 9,989.13, after hitting a five-month closing high of 10,125.99 on Monday.
The Nikkei had edged lower in morning trade with investors taking profits on the benchmark's rally of almost 10 percent this month while cautious about taking new positions amid European debt concerns.
The broader Topix index <.TOPX> shed 1 percent to 865.72. (Reporting by Aiko Hayashi; Editing by Edwina Gibbs)