TOKYO, Oct 20 (Reuters) - Japan's Nikkei share average tumbled on Thursday, retreating from the previous day's two-week high, as global recession worries soured risk appetite.

The Japanese equity benchmark slid 1.11% to 26,954.15 at the midday recess, and at one point dropped as low as 26,889.15.

It rose as high as 27,371.38 on Wednesday for the first time since Oct. 6. Recently, investors have been watching the psychological 27,000 line closely to gauge the market's trend.

The Nikkei joined regional peers in extending a global stock rout that sent the U.S. S&P 500 down 0.67%, reversing a two-day rally.

Japan's broader Topix lost 0.63% to 1,892.98.

Investors are focused on the prospect of continued aggressive monetary tightening at the Federal Reserve and many of its global peers to combat red-hot inflation, even as risks rise that rate hikes could trigger recession.

World bond markets also buckled, with U.S. 10-year Treasury yields surging to new multi-year highs, giving the U.S. dollar new momentum that carried it to a fresh 32-year high to the yen just below 150.

The upward pressure on Japanese government bond yields forced the Bank of Japan, which is alone among developed-market central banks in still pursuing stimulus, to step into the market and defend its yield cap.

"If U.S. yields stay elevated, there is still more room to the downside for Japanese stocks," said Kenji Abe, an equity strategist at Daiwa Securities, adding that the Nikkei could reach 26,500 before the index is cheap enough to spur bargain hunting.

"Investor sentiment is weak."

Of the Nikkei's 225 components, 184 fell versus 35 that rose and six that were flat.

The only winning sectors on the index were energy, which rose 0.86% amid a climb in crude oil prices, and financials, which were 0.44% higher as higher long-term rates boosted the profit outlook from lending.

Basic materials was the worst-performing sector, losing 1.33%.

Communications and automotive parts supplier Fujikura led decliners with a 5.3% plunge.

Uniqlo store operator Fast Retailing was the biggest loser by index points, shedding 60 points with its 2.04% slide.

Chipmaking equipment manufacturer Tokyo Electron was another standout underperformer, dropping 2.85%. (Reporting by Kevin Buckland)