Nikkei inches up to 2-month high, SoftBank Group drops

* Nikkei up 0.1 pct, Topix 0.28 pct on Sino-U.S. trade hopes

* Defensive shares, such as railway firms, utilities, lead gains

* Soft Reuters tankan data weighs on manufacturers' shares

* SoftBank Group falls on report of complaints on tech funds

By Hideyuki Sano and Tomo Uetake

TOKYO, Feb 19 (Reuters) - Japanese shares ticked up to new two-month highs on Tuesday on hopes of a breakthrough in U.S.-China trade talks, though the gains were led by defensive shares as investors remained cautious on the global economic outlook.

Nikkei share average .N225 edged up 0.10 percent to 21,302.65, its highest close since mid-December.

The broader Topix .TOPX added 0.28 percent to 1,606.52, also the highest in two months.

SoftBank Group 9984.T shares dropped 3.3 percent, after the Wall Street Journal reported that its key investors, including Saudi Arabia's sovereign wealth fund, were unhappy with the high valuation of its flagship Vision Fund. markets were without firm directional cues as U.S. markets were shut on Monday for a holiday, but sentiment remained broadly positive with investors looking for clues from trade negotiations between Washington and Beijing.

A new round of talks between the United States and China to resolve their trade war starts in Washington on Tuesday, and later this week will involve top-level officials, the White House said on Monday. Shimizu, head of research at Asset Management One, said he does not want to buy shares of Japanese exporters at present.

"But I think domestic demand-led firms will do well because the government is likely to take lots of steps to support the economy to counter the planned hikes in consumption tax," he said.

Shimizu added that earnings expectations "have fallen a bit too much. It seems like markets expect Japanese corporate earnings to fall about five percent in the next financial year, but I do think they can grow by almost 10 percent."

Defensive shares advanced on Tuesday with East Japan Railway 9020.T and Central Japan Railway 9022.T rising 2.0 percent and 1.6 percent, respectively.

Utility shares were another bright spot, with Chubu Electric Power 9502.T climbing 2.7 percent and Tokyo Gas 9531.T 2.2 percent.

Many manufacturers were softer as investors remain wary that slowdowns in China and elsewhere could hurt their top line.

Robot maker Fanuc 6954.T fell 0.3 percent and Panasonic 6752.T dropped 0.7 percent.

The latest Reuters monthly tankan, which showed corporate sentiment in February slipped to the lowest levels since late 2016, also weighed on investor sentiment.

The monthly poll found manufacturers' mood sliding for a fourth straight month and service-sector morale falling for the first time in four months, in a sign companies took a hit from weakening demand both at home and abroad amid slowing global growth and trade frictions. was light with turnover .VM1.T at 1.857 trillion yen ($16.78 billion), one of the lowest in recent months and 27.5 percent below the average for the past year. ($1 = 110.6700 yen) (Editing by Jacqueline Wong and Richard Borsuk)