* Rakuten rises after report co and KDDI will team up on mobile payment
* NTT Docomo drags down KDDI, SoftBank
* Zozo sinks after it abandons Zozo suit
* Panasonic, Yamaha Motor among Thursday losers
By Ayai Tomisawa
TOKYO, Nov 1 (Reuters) - Japan's Nikkei fell on Thursday, pulled down by large cap mobile phone companies after NTT Docomo said lower service fees will start hitting its earnings next year, stoking concerns about the profit outlook for the sector.
On the first trading day of November, the Nikkei share average dropped 1.1 percent to 21,687.65 points. It fell 9.1 percent in October, its biggest monthly decline since June 2016.
The communications sector tanked 8.3 percent and was the worst performer on the board.
NTT Docomo Inc said that it would reduce service fees by 20-40 percent in April-June that would affect its earnings from the next fiscal year. Its shares nosedived over 15 percent to a two-year low.
KDDI Corp plunged 16 percent to a four-year low, while SoftBank Group Corp plummeted 8.2 percent as the news put pressure on the technology conglomerate before its planned initial public offering of its mobile-phone unit in December.
In late trade, e-commerce giant Rakuten Inc, which plans to enter a mobile phone business next year, reversed course and ended 3 percent higher after the Nikkei business daily reported that the company will team up with KDDI on mobile phone payment.
The two firms confirmed the report after the market close. KDDI will give Rakuten access to its nationwide roaming services, while Rakuten will provide KDDI its expertise in mobile payments, the companies said in a statement.
Japanese stocks were hit by a rout in global stocks last month as well as a sharp sell-off in U.S. tech shares which led the gains in Wall Street this year. Concerns about an impact from Sino-U.S. trade war to curb global demand also hit investor sentiment.
"What the market was worried about last month, mainly the impact from the trade war on Japanese companies' earnings, is now being focused," said Takuya Takahashi, a strategist at Daiwa Securities.
Takahashi said that earnings reports have been mixed so far and investors will likely remain cautious for a while.
Panasonic Corp tumbled 5.6 percent after its operating profit fell 15 percent in July-September hit by rising costs at the battery plant it jointly runs with U.S. electric vehicle maker Tesla Inc.
Yamaha Motor stumbled 15 percent after it cut its annual operating profit forecast hit by poor motorcycle sales in emerging markets.
On the other hand, Murata Manufacturing, which makes smartphone parts, jumped 9.7 percent after the company raised its annual operating profit outlook.
Financial firms, which hunt for high-yielding products, attracted buying after U.S. yields rose overnight. Dai-ichi Life Holdings surged 1.8 percent and T&D Holdings gained 1.4 percent.
Elsewhere, Zozo Inc fell 6 percent after the fashion company reported falling profits, production delays and the phasing out of its Zozosuit.
Zozo Chief Executive Yusaku Maezawa said on Wednesday that instead of the polka-dot bodysuit, a basic set of measurements provided by users crunched with Zozo's data would be enough to produce custom-made clothes.
The broader Topix shed 0.9 percent to 1,632.05. (Editing by Kim Coghill)