* Dlr/yen below 89 yen hits exporters; Nikkei down 2.4 pct
* Many exporters have set rate assumption around 90-95 yen
* Sustainability of econ recovery in doubt -market analyst
By Aiko Hayashi
TOKYO, Sept 28 (Reuters) - Japan's Nikkei average fell below the 10,000 mark to its weakest level in two months on Monday, as a sharply stronger yen hit shares of exporters such as Honda Motor and after disappointing housing data fuelled worries about the strength of a U.S. recovery.
The U.S. dollar slid to an eight-month low of 88.23 yen in early Asian trade on Monday, as investors unwound short yen positions and as expectations that Japan will intervene at these levels receded.
Market players said the stronger yen is putting heavy pressure on the exporter-heavy Nikkei, as it eats into exporters' overseas profits when they are repatriated.
"Many exporters have set their currency rate assumption at 90-95 yen, and if the dlr/yen were to stay below 90 yen, the impact on their earnings would be huge and that's a concern," said Yutaka Miura, senior technical analyst at Mizuho Securities.
In moderate trade, the benchmark Nikkei touched 9,989.65, breaking below 10,000 for the first time since July 24 before rising back to 10,023.99, down 2.4 percent.
The index extended a 2.6 percent fall it booked on Friday.
The broader Topix shed 2.3 percent to 901.72.
In a holiday-shortened week, the Nikkei slipped 1 percent last week, although it had gained 16 percent since the beginning of the year.
"We also have growing scepticism about the sustainability of the economic recovery. Economic indicators have improved but many of them are still in negative territory," said Takahiko Murai, general manager of equities at Nozomi Securities.
Data showed August sales of new homes fell short of Wall Street's expectations while new orders for long-lasting U.S. manufactured goods fell by their biggest margin in seven months, helping push the S&P 500 Index 0.6 percent lower.
In addition to currency moves, the market will focus on a string of economic indicators due later this week, including U.S. jobs data on Friday, market players said.
EXPORTERS WOES
Honda shares skidded 5.3 percent to 2,665 yen, while electronics parts maker Kyocera Corp lost 2.6 percent to 8,140 yen and chip-tester maker Advantest Corp dropped 4.7 percent to 2,420 yen.
Sanyo Electric Co Ltd tumbled 6.4 percent to 218 yen after the company said it is likely to post an annual net loss, instead of its previous estimate to break even, as costs for its voluntary retirement scheme and a product recall weigh.
Mitsui O.S.K. Lines sank 6 percent to 518 yen after the shipping company widened its interim loss forecast due to unexpectedly higher fuel costs and terminal usage fees.
But Nippon Meat Packers climbed 2.6 percent to 1,102 yen after Mizuho Securities raised its rating to "1" from "3", saying the new government's farm policies may help weaken the Japan Agricultural Cooperatives, a main competitor for the company in its domestic meat business.
Ryohin Keikaku Co jumped 3.5 percent to 4,420 yen after Credit Suisse raised its rating on the operator of "Muji" clothing and home goods stores to "outperform" from "neutral," citing improved merchandise and a successful TV advertising campaign.
Some 1.1 billion shares changed hands on the Tokyo exchange's first section, roughly in line with last week's morning average.
Declining stocks outnumbered advancing ones by 3 to 1. (Editing by Edwina Gibbs)