Nikkei hits 2-week low as Sino-U.S. trade frictions persist

* Nikkei sheds 1.21%, Topix loses 0.94%

* Banking, insurers underperform on falling U.S. yields

By Ayai Tomisawa

TOKYO, May 29 (Reuters) - Japan's Nikkei hit a two-week low on Wednesday as persistent Sino-U.S. trade frictions turned sentiment against companies with large exposure to China.

Financial stocks also retreated as U.S. treasury yields fell to their lowest since September 2017 because of the risks posed to global growth by the trade war between the world's two biggest economies.

The Nikkei share average .N225 ended the day down 1.21% at 21,003.37, after falling as low as 20,884.61, the lowest level since May 14.

"Global investors likely decided to unload risky assets as the status of the U.S.-China trade war has not changed," said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute, adding that declining global bond yields were spooking the market.

Banking and insurer stocks were sold after benchmark U.S. Treasury yields fell to their lowest levels since September 2017. Mitsubishi UFJ Financial Group 8306.T fell 1.4%, Sumitomo Mitsui Financial Group 8316.T declined 1.2% and Dai-ichi Life Holdings 8750.T sank 1.7%.

U.S. President Donald Trump said this week he was "not yet ready" to make a deal with China, although he expected one could be reached in the future.

An expanding tariff battle between the two sides has raised concerns the trade war would lead to a global economic slowdown. At the same time, Trumped pressed Japan to reduce its trade imbalance with the United States.

Companies with high exposure to China fell. Construction equipment maker Komatsu Ltd 6301.T dropped 1%, factory automation machinery firm Yaskawa Electric 6506.T lost 2.9% and cosmetics company Shiseido Co 4911.T shed 3.6%.

Among the gainers, Citizen Watch 7762.T rose 0.6% after it said it will buy back up to 2.2% of its own shares worth 3 billion yen. but two of the Topix's 33 subsectors were in the red. Declining issues outnumbered advancing ones 1,541 to 512.

The broader Topix .TOPX dropped 0.94% to 1,536.41.