* Topix volume low as investors on sidelines before Fed
* Japan Display soars after Effissimo eager to offer engagement
By Ayai Tomisawa
TOKYO, March 19 (Reuters) - Japan's Nikkei ended lower on Tuesday as investors took profits on exporters' stocks, but losses were capped by gains in financials which were helped by rising U.S. yields.
Most investors stayed on the sidelines, however, while they await the U.S. central bank's latest policy decision after a two-day meeting starting later in the day.
The Nikkei share average ended down 0.1 percent at 21,566.85 points.
Online fashion retailer Zozo Inc dived 11 percent and was the most traded stock by turnover, with traders citing a brokerage downgrade.
Exporters lost ground as the yen firmed against the dollar, with Tokyo Electron dropping 0.4 percent and Panasonic Corp falling 0.7 percent after gaining the day before.
The dollar slipped 0.2 percent to 111.26 yen, extending its drop to a third session.
On the other hand, insurers and banks, which hunt for higher yielding assets such as foreign bonds, were bought. MS&AD Insurance added 0.5 percent and Dai-ichi Life soared 1.3 percent, while Sumitomo Mitsui Financial Group rallied 1.0 percent.
A lack of news from U.S.-China trade talks also dampened activity.
"We've been seeing low volume recently and it's because most news has been priced into the market," said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Center.
"The next catalyst will likely be full-year earnings but until then, activity may stay calm."
The Topix saw volume of 1.1 billion shares on Tuesday after posting 1.0 billion shares on Monday, the lowest in 1-1/2 weeks.
Investors expect the U.S. Federal Reserve will reinforce its dovish approach toward further interest rate hikes.
Elsewhere, Japan Display Inc soared 7.3 percent after Singapore-based fund Effissimo said in a filing that its purpose of owning Japan Display shares had changed to making suggestions to management and possibly raising shareholder proposals, from a previous aim of pure investment.
The broader Topix dropped 0.2 percent to 1,610.23. (Editing by Kim Coghill)