* Weak Chinese market exacerbates sentiment
* Japan export data drags machinery makers
* Banks, insurers outperform on rising U.S. yields
By Ayai Tomisawa
TOKYO, Oct 18 (Reuters) - Japan's Nikkei fell on Thursday, as hawkish minutes from the U.S. Federal Reserve's last policy meeting knocked global sentiment and a surprise decline in exports hit machinery makers.
Heavy selling of Chinese shares also soured confidence in the Asian market day, leading to an extension of losses in Japanese stocks.
The Nikkei share average ended 0.8 percent lower at 22,658.16.
The index has fallen more than 7 percent since its 27-year peak hit on Oct. 2, as concerns around rising debt yields and worries about the slowing Chinese economy gripped global equity markets.
On Wednesday, the Fed's minutes for its September meeting showed all policy makers agreed to raise key interest rates for a third time in 2018 with many open to further hikes.
The Japanese market's weakness was exacerbated by a sell-off in the China market, where the Shanghai Composite index touched its lowest in nearly four years hit by investor concerns about lean domestic growth with the country's premier warning of increasing downward pressure.
"Investors are reminded about the reasons for last week's selling and they've become guarded against those negative risks again," said Shogo Maekawa, a global market strategist at JPMorgan Asset Management. "Caution against rising yields will likely cap the Japanese market's upside for a while."
Machinery makers were battered after economic data showed Japan's exports unexpectedly fell in September from a year earlier, the first decline in 22 months.
Japanese exporters, especially factory automation equipment makers, which are already been under pressure on worries about slowing demand in China, were particularly hit. Yaskawa Electric nosedived 7.8 percent and Fanuc Corp plunged 4.1 percent.
Machine tool makers also declined, with Okuma Corp tanking 5.2 percent, Makino Milling Machine dropping 3.9 percent and Tsugami Corp falling 1.9 percent.
Other manufacturers which have large exposure to the Chinese market followed suit. Baby bottle maker Pigeon Corp stumbled 5.4 percent and construction equipment maker Komatsu Ltd shed 2.9 percent.
"There may be a technical rebound in these stocks, but they may stay basically weak as long as worries about the Chinese economy persist," said Chihiro Ohta, general manager at SMBC Nikko Securities.
Banks and insurers, which hunt for higher-yielding products, found support after U.S. Treasury yields rose overnight.
Mitsubishi UFJ Financial Group gained 0.4 percent, T&D Holdings soared 0.7 percent and Sompo Holdings added 0.3 percent.
The broader Topix declined 0.5 percent to 1,704.64. (Editing by Sam Holmes)