TOKYO, May 13 (Reuters) - Japanese shares cut early

losses to trade flat on Monday on a mixed reaction to local

companies' earnings outlook and shareholder rewarding measures,

while the Bank of Japan's reduction in bond buying weighed on

sentiment.

The Nikkei was up 0.04% to 38,243.59 by the midday

break, after slipping below the 38,000 level for the first time

since May 2.

The broader Topix inched down 0.01% to 2,728.03.

Mitsui Fudosan ( MTSFF ) tanked 6.43%, as the developer's

annual net forecast was below the market expectations. Peer

Mitsubishi Estate fell 4.47%.

The real estate sector lost 3.66% to become the

worst performer among the Tokyo Stock Exchange's 33 industry

sub-indexes.

"Overall, the market had high expectations for corporate

earnings so when a company disappoints investors, their reaction

is big," said Takehiko Masuzawa, trading head of Phillip

Securities Japan.

Chip-making equipment maker Tokyo Electron ( TOELF ) slipped

0.23% to become the biggest drag on the Nikkei.

Earlier in the session, the Bank of Japan cut the amount of

Japanese government bonds it offered to buy in a regular

purchase operation, sending the Japanese government bond yields

higher.

"The move was taken as negative for the stock market as this

is a step closer to the normalization of the BOJ's policy, which

raised expectations for a further rate hike," said Phillip

Securities' Masuzawa.

Among the gainers, Honda Motor ( HMC ) rose 2.1% after the

automaker said it would buy back to up to 3.7% of its owns

shares worth 300 billion yen ($1.93 billion).

KDDI ( KDDIF ) rose 3.48% after the mobile phone company

announced a similar move.

Of the 225 Nikkei components, 85 stocks rose and 138 fell,

while two were flat.

($1 = 155.7600 yen)