Japanese shares flat as local companies see mixed reaction for earnings

TOKYO, May 13 (Reuters) - Japanese shares cut early losses to trade flat on Monday on a mixed reaction to local companies' earnings outlook and shareholder rewarding measures, while the Bank of Japan's reduction in bond buying weighed on sentiment.

The Nikkei was up 0.04% to 38,243.59 by the midday break, after slipping below the 38,000 level for the first time since May 2.

The broader Topix inched down 0.01% to 2,728.03.

Mitsui Fudosan tanked 6.43%, as the developer's annual net forecast was below the market expectations. Peer Mitsubishi Estate fell 4.47%.

The real estate sector lost 3.66% to become the worst performer among the Tokyo Stock Exchange's 33 industry sub-indexes.

"Overall, the market had high expectations for corporate earnings so when a company disappoints investors, their reaction is big," said Takehiko Masuzawa, trading head of Phillip Securities Japan.

Chip-making equipment maker Tokyo Electron slipped 0.23% to become the biggest drag on the Nikkei.

Earlier in the session, the Bank of Japan cut the amount of Japanese government bonds it offered to buy in a regular purchase operation, sending the Japanese government bond yields higher.

"The move was taken as negative for the stock market as this is a step closer to the normalization of the BOJ's policy, which raised expectations for a further rate hike," said Phillip Securities' Masuzawa.

Among the gainers, Honda Motor rose 2.1% after the automaker said it would buy back to up to 3.7% of its owns shares worth 300 billion yen ($1.93 billion).

KDDI rose 3.48% after the mobile phone company announced a similar move.

Of the 225 Nikkei components, 85 stocks rose and 138 fell, while two were flat.

($1 = 155.7600 yen) (Reporting by Junko Fujita; Editing by Rashmi Aich)