* Nikkei's next target at 8,697, 61.8% retracement
* Hope for Tokyo solo intervention supports stocks -analysts
By Aiko Hayashi
TOKYO, Aug 25 (Reuters) - Japan's Nikkei average fell to its lowest in 16 months on Wednesday after the yen hit a 15-year high versus the dollar as dismal U.S. housing data added to fears the global economic recovery would fizzle out.
But market players said hopes for action by the government and the Bank of Japan are providing support after the Nikkei business daily reported that Japan's Ministry of Finance may consider unilateral yen-selling market intervention if speculators drive up the yen.
In early Asian trading, the dollar recouped some ground to 84.40 on electronic trading platform EBS after hitting a 15-year low around 83.60 yen.
The Nikkei stayed below 9,000, having broken below the level for the first time since May 1, 2009 the day before.
The 9,000 to 9,100 area had been strong support since last year, and a break below that would likely feed downward momentum, market players said, with few technical targets to break the benchmark's fall.
"That the Nikkei has broken below 9,000, which has been very strong support for a while, is a significant event and it's urgent that Japanese authorities take action," said Koichi Nosaka, a market analyst at Securities Japan, Inc.
"If the index stays below that level for too long, 9,000 will eventually become solid resistance. That said, those who have been selling are now on alert after the news report about the possibility of further monetary easing and unilateral intervention."
The benchmark Nikkei slipped 0.9 percent to 8,915.68, after falling as low as 8,888.65, its lowest since May 1, 2009. The broader Topix dropped 0.9 percent to 810.73.
The Nikkei lost 1.3 percent on Tuesday, with hedge funds and foreign investors seen selling amid mounting concern about the authorities' inaction on a strong yen, which threatens a fragile economic recovery.
One target for the Nikkei stands at 8,697, a 61.8 percent retracement of the rally between its March 2009 low and April 2010 high.
"But market hopes and demands for moves by the Bank of Japan, particularly the possibility of solo intervention, will likely help," said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets.
"If the central bank calls an emergency meeting, say after the morning close, the Nikkei could still swing to positive territory and go above 9,000."
Pessimism about global growth has grown infectious in recent weeks after lacklustre U.S. employment and consumer reports. Fears were reinforced on Tuesday by a report showing U.S. existing house sales slid much more than expected in July after the government ended homebuyer tax credits.
U.S. stocks fell to their lowest level in seven weeks, while prices of U.S. Treasuries soared, sending two-year yields to another record low.
In Tokyo trading, Honda Motor Co and other exporters slid.
Many Japanese exporters have set their currency rate assumptions around 90 yen per dollar for the financial year to next March, although Honda cut its assumption to 87 yen from 90 yen. A stronger yen eats into exporter profits when repatriated.
Honda lost 1.6 percent to 2,759 yen, TDK Corp shed 1.3 percent to 4,325 yen and stepper maker Nikon Corp fell 1.9 percent to 1,382 yen. (Editing by Joseph Radford)