* Investors on sidelines amid growing tension ahead of July 6
* Defensive stocks underperform
* Sharp tumbles 5 pct after jumping 15 pct on Fri
By Ayai Tomisawa
TOKYO, July 2 (Reuters) - Japan's Nikkei share average edged lower on Monday morning after a central bank survey showed manufacturers' confidence worsening amid trade tensions with Washington, although some firms found support on yen expectations.
The Nikkei fell 0.2 percent to 22,270.76 at the midday break while the broader Topix dropped 0.3 percent to 1,725.86.
Japanese big manufacturers' business confidence worsened in June from three months ago, the Bank of Japan's closely watched quarterly "tankan" survey showed on Monday.
Defensive stocks, which have outperformed lately, were sold. Retailer, food and railway stocks languished, with drugstore operator Matsumotokiyoshi Holdings falling 2.3 percent, Yakult Honsha tumbling 3.4 percent and East Japan Railway dropping 0.8 percent.
Sharp Corp, which jumped 15 percent on Friday after it cancelled plans to issue up to $2 billion in new shares, dropped more than 5 percent.
However, the survey also showed big firms plan to raise their capital spending by 13.6 percent in the financial year from April 2018, versus economists' median estimate of a 9.3 percent gain.
"It makes sense that companies' capital spending is rising this fiscal year after they reported strong earnings results last fiscal year, especially when there's a shareholders' push to spend funds more effectively," said Tsuyoshi Ueno, a senior economist at NLI Research Institute.
"But for future business sentiment, companies are seen having a hard time pricing in the potential impact of a trade war to their businesses at this point."
Meanwhile, shares of manufacturers like chip equipment makers, which had been hit recently as investors avoided investing in cyclical stocks on trade war worries, gained ground. Traders said investors were somewhat relieved that the yen expectations of about 107 to the dollar in the tankan were weaker than the assumption of about 105 some companies had made in their earnings releases in May.
Japanese stocks, particularly exporting firms, tend to perform better when the yen weakens or is expected to weaken.
The precision machinery sector was up 0.9 percent, while the electric machinery sector gained 0.7 percent.
Advantest Corp rose 1.0 percent and Tokyo Electron added 0.9 percent. Nikon Corp soared 1.4 percent, Olympus Corp surged 1.8 percent and Panasonic Corp added 1.1 percent.
The latest tankan showed big manufacturers set their expected dollar/yen rate at 107.26 for this fiscal year, compared with 109.66 yen seen three months ago.
The dollar stood at around 111 yen in the early Monday trade.
Analysts said that investors will likely stay on the sidelines this week amid growing tension ahead of a July 6 deadline when the U.S. and China are due to impose US$34 billion of tariffs on their respective imports. (Editing by Sam Holmes)