* Companies going ex-dividend take off about 170 points off Nikkei - analysts
* Stocks with higher yields underperform
By Ayai Tomisawa
TOKYO, March 27 (Reuters) - Japan's Nikkei dropped on Wednesday morning as companies' going ex-dividend dented the market, while stability in U.S. yields supported the downside.
Companies whose business years end in March go ex-dividend on Wednesday, after which investors will no longer qualify for the latest dividend payout.
Market participants estimated the effect of the resulting adjustment to prices would take about 170 points off the Nikkei benchmark index.
The Nikkei share average fell 0.6 percent, or 130.66 points, to 21,297.73 at the midday break.
The Japanese market has been volatile this week, tumbling 3 percent on Monday and rebounding on Tuesday. Investor sentiment was hit by concerns about a U.S. economic recession after the three-month, 10-year portion of the Treasury yield curve inverted on Friday.
On Tuesday, U.S. yields were steady, giving temporary relief to the market, analysts said.
"Since the market saw a big dip already, the bad news seemed to have been priced in for now," said Isao Kubo, an equity strategist at Nissay Asset Management, adding that investors will continue to monitor economic indicators to assess the health of the U.S. economy.
Investors digested weak U.S. consumer confidence numbers for March, as well as housing data that showed U.S. homebuilding fell more than expected in February.
"The data are not good, but they are not giving investors excessive fears that could trigger sharp selling," Nissay's Kubo said, adding sentiment would also be supported by currrency factos so long as the the dollar-yen level stayed comfortably above 110 yen.
The broader Topix dropped 1.0 percent to 1,602.29, with all but one of its 33 subsectors in negative territory.
Stocks with high dividend yields underperformed, such as utility stocks, banks and some exporters.
Kansai Electric Power tumbled 4.5 percent and Tokyo Gas shed 2.7 percent.
Mitsubishi UFJ Financial Group dropped 1.9 percent and Sumitomo Mitsui Financial Group plunged 2.8 percent.
Toyota Motor Corp declined 2.5 percent and Subaru Corp dipped 3.7 percent.
On the other hand, nonferrous metal products distributor Alconix tumbled 8.7 percent after the company cut its net profit outlook for the year ending March 2019 to 4.3 billion yen from 5.5 billion yen. (Editing by Simon Cameron-Moore)