Japan stocks edge lower, weak China data, North Korea risks weigh

* Topix hits highest since Aug 2015

* Foreign short-covering seems to have run its course - analyst

* Nisshinbo sold on profit-taking with heavy trade

By Ayai Tomisawa

TOKYO, Sept 14 (Reuters) - Japanese stocks edged lower in choppy trade on Thursday and snapped a three-day winning streak, as weak Chinese economic data offset early gains when the broader Topix index hit the highest level in more than two years.

Sentiment deteriorated in the afternoon on news that a North Korean state agency threatened to use nuclear weapons to "sink" Japan and reduce the United States to "ashes and darkness" for supporting a U.N. Security Council resolution and sanctions over its latest nuclear test.

The Nikkei share average fell 0.3 percent to 19,807.44, while the broader Topix also dropped 0.3 percent to 1,632.13. In early deals, the Topix rose 0.3 percent to as high as 1,642.56, the best level since August 2015.

The non-ferrous metal sector was the worst performing sector on Thursday. Mitsui Mining & Smelting (XZJCF) tumbled 5.4 percent and Toho Zinc (TOZOF) declined 5.3 percent.

Chinese data released in late morning showed factory output in the world's second-biggest economy grew 6.0 percent in August on-year, while fixed-asset investment expanded 7.8 percent in the first eight months, both well below economists' forecasts. China is one of Japan's major export markets.

Market participants said since the Nikkei hit a four-month low on Sept. 8, foreign investors and hedge funds have started covering their short positions as geopolitical tensions on the Korean peninsula had ebbed.

But that has changed with the Nikkei recovering and hitting a one-month high on Wednesday.

"Foreign investors' short-covering seems to have run its course, while China's weak data soured market sentiment," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Recent gainers including insurance stocks and some exporters were among Thursday's losers.

MS&AD Insurance (MSADF) fell 0.8 percent, Sony Corp (SNE) dropped 3.5 percent and Hitachi Ltd (HTHIF) shed 1.0 percent.

Meanwhile, Nisshinbo Holdings plumbed 9.8 percent and was the fourth-most traded stock by turnover as investors sold the stock to take profits from the sharp rises on the previous day. It jumped 26 percent on Wednesday after the textile company said it would roll out platinum-free fuel-cell catalysts, which has the potential to cut the high prices of fuel-cell cars.

Traders said investors are looking ahead to U.S. consumer inflation data later in the day for clues on the possible timing of the U.S. Federal Reserve's next rate rise. (Editing by Shri Navaratnam and Gopakumar Warrier)

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