* Sharp shares jump in early Friday trade
* Shares had slid over 20 pct since issue was announced June 5 (Adds background, share price)
TOKYO, June 29 (Reuters) - Japan's Sharp Corp has cancelled plans to issue up to $2 billion in new shares, saying on Friday trade friction between the United States and China has increased volatility in the stock market.
The company first announced the plan on June 5, saying it would use the funds mostly to buy back preferred shares that were issued to banks in a return for a financial bailout in 2015. The plan was finalised just a week ago.
Reacting to news of the cancellation, shares in Sharp opened up 15 percent on the Tokyo Stock Exchange on Friday.
They had lost 21 percent since the June 5 announcement until Friday's open as the share issue would have resulted in earnings dilution, even though the company said the impact could have been worse had the preferred shares been converted into regular stock. The broader Tokyo stock market fell about 1 percent over that period.
The share issue plan came after a recovery made by Sharp under Taiwan's Foxconn, the world's biggest contract manufacturer, which took control of the Japanese company two years ago.
Sharp recently posted its first annual net profit in four years, helped in large part by cost cuts but also by the sales network in China of Foxconn, which is formally known as Hon Hai Precision Industry Co Ltd. (Reporting by Chang-Ran Kim and Makiko Yamazaki; Editing by Richard Pullin and Muralikumar Anantharaman)