* Machinery, shippers sold after trade optimism fades
* Nexon soars after report Amazon and others submit bids for its holding firm
By Ayai Tomisawa
TOKYO, Feb 28 (Reuters) - Japan's Nikkei fell on Thursday as hopes for progress in U.S.-China trade negotiations receded and as data showed the biggest decline in Japanese factory output in a year, dragging down cyclical stocks.
Japanese stocks widened their losses in late trade, with traders noting investors were closing their positions as they awaited more details from the U.S.-North Korea summit in Vietnam.
U.S. President Donald Trump and North Korean leader Kim Jong Un cut short their summit schedule during a second day of talks in Vietnam on Thursday.
"The market became a bit nervous on why the summit was cut short, so investors decided to take a wait-and-see stance," said Hikaru Sato, a senior technical analyst at Daiwa Securities.
White House spokeswoman Sarah Sanders later confirmed the United States and North Korea did not reach an agreement. "No agreement was reached at this time, but their respective teams look forward to meeting in the future," she said.
The Nikkei share average ended 0.8 percent lower at 21,385.16 points.
Sentiment remained negative throughout the day, as U.S. Trade Representative Robert Lighthizer told a congressional hearing the United States and China still had hard work ahead to settle their trade dispute in his first public comments since Trump announced a delay to a planned hike in U.S. import tariffs on Sunday.
"Caution about trade deals returned to the market," said Shingo Ide, chief equity strategist at NLI Research Institute. "The market's consensus has become that a U.S.-China trade skirmish will last for a while."
Worsening the mood, Japan's factory output fell the most in a year in January in a sign slowing Chinese demand and the Sino-U.S. trade war are taking an increasing toll on the country's manufacturers, a major driver of economic growth.
Machinery and cyclical shares such as shippers lost ground, with Fanuc Corp falling 2.1 percent, Tokyo Electron sliding 1.6 percent, Komatsu Ltd shedding 2.6 percent and Mitsui OSK Lines shedding 1.6 percent.
The electric machinery sector slipped 1.6 percent and the shipping sector dropped 1.5 percent to be the two worst performers on the board.
Online gaming company Nexon Co jumped 4.7 percent after Maeil Business Newspaper said on Wednesday that Amazon.com Inc, Comcast Corp and Electronic Arts Inc submitted initial bids for its holding firm NXC Corp, citing investment banking sources.
The broader Topix fell 0.8 percent to 1,607.66.
Declining issues outnumbered advancing ones 1,337 to 702.
Editing by Jacqueline Wong