* Honda, Mazda, Nissan, Panasonic, Canon among those stopping production
* China warns on trade ties; Japan businesses suspend work
* U.S. Defense Secretary Panetta urges restraint
By Kazunori Takada and Chris Buckley
SHANGHAI/BEIJING, Sept 17 Some major Japanese brandname firms announced factory shutdowns in China on Monday and urged expatriates to stay indoors ahead of what could be more angry protests over a territorial dispute between Asia's two biggest economies.
China's worst outbreak of anti-Japan sentiment in decades led to weekend demonstrations and violent attacks on well-known Japanese businesses such as car makers Toyota and Honda, forcing frightened Japanese into hiding and prompting Chinese state media to warn that trade relations could now be in jeopardy.
Another outbreak of anti-Japan sentiment is expected across China on Tuesday, the anniversary of Japan's 1931 occupation of parts of mainland China.
"I'm not going out today and I've asked my Chinese boyfriend to be with me all day tomorrow," said Sayo Morimoto, a 29-year-old Japanese graduate student at a university in Shenzhen.
Chinese Foreign Ministry spokesman Hong Lei said the government would protect Japanese firms and citizens and called for protesters to obey the law.
"The gravely destructive consequences of Japan's illegal purchase of the Diaoyu Islands are steadily emerging, and the responsibility for this should be born by Japan," he told a daily news briefing. The islands, called the Senkaku by Japan and Diaoyu by China.
China and Japan, which generated two-way trade of $345 billion last year, are arguing over the uninhabited islets in the East China Sea, a long-standing dispute that erupted last week when the Japanese government decided to buy some of them from a private Japanese owner.
In response, China sent six surveillance ships to the area, which contains potentially large gas reserves. On Monday, a flotilla of around 1,000 Chinese fishing boats was sailing for the islands.
The weekend protests mainly targeted Japanese diplomatic missions but also shops, restaurants and car dealerships in at least five cities. Toyota Motor Corp and Honda Motor Co said arsonists had badly damaged their stores in the eastern port city of Qingdao at the weekend.
Toyota said its factories and offices were operating as normal on Monday and that it had not ordered its Japanese employees home.
Honda said it would suspend production in China starting on Tuesday for two days. Fast Retailing Co, Asia's largest apparel retailer, said it had closed some of its Uniqlo outlets in China and may close yet more.
Japan's top general retailer, Seven & I Holdings, said it would close 13 Ito Yokado supermarkets and 198 "7-11" convenience stores in China on Tuesday, while Sony Corp is discouraging non-essential travel to China.
Mazda Motor Corp will halt production at its Nanjing factory, which it jointly operates with Chongqing Changan Automobile Co Ltd and Ford Motor Co, for four days. Nissan Motor Co suspended China production for two days, starting Monday, sources said.
"I want to leave," said a Nissan executive, who declined to be named, in the southern Chinese city of Guangzhou. "Protests near my home were horrifying over the weekend."
Electronics group Panasonic said one of its plants had been sabotaged by Chinese workers and would remain closed through Tuesday.
Canon Inc will stop production at three of its four Chinese factories on Tuesday, Japanese media reports said, while All Nippon Airways Co reported a rise in cancellations on Japan-bound flights from China.
The dispute also hit the shares of Hong Kong-listed Japanese retailers on Monday, with department store operator Aeon Stores (Hong Kong) Co Ltd falling to a seven-month low.
"All Japan-related shares are under selling pressure," said Andrew To, a research director from Emperor Capital.
Japan warned its citizens about large-scale protests in China on Tuesday. Many Japanese schools across China, including in Beijing and Shanghai, have cancelled classes this week.
U.S. SAYS NOT TAKING SIDES
Japanese Prime Minister Yoshihiko Noda, who met visiting U.S. Defense Secretary Leon Panetta on Monday, urged Beijing to ensure Japan's people and property were protected.
Panetta said the United States would stand by its security treaty obligations to Japan but not take sides in the row, and urged calm and restraint on both sides.
The overseas edition of the People's Daily, the main newspaper of the Chinese Communist Party, warned that Beijing could resort to economic retaliation if the dispute festers.
"How could it be that Japan wants another lost decade, and could even be prepared to go back by two decades?" asked a front-page editorial. China "has always been extremely cautious about playing the economic card", it said.
"But in struggles concerning territorial sovereignty, if Japan continues its provocations, then China will take up the battle."
China is Japan's biggest trade partner and Japan is China's third largest. Any harm to business and investment ties would be bad for both economies at a time when China faces a slowdown.
Qingdao police said they had arrested a number of people suspected of "disrupting social order" during the protests, apparently referring to the attacks on Japanese-operated factories and shops there.
In Shanghai, home to China's biggest Japanese expatriate population of 56,000, one expat said his family as well as other Japanese customers had been chased out of a Japanese restaurant on Sunday by protesters near the Japanese consulate.
Guangzhou police said on their official microblog that they had detained 11 people for smashing up a Japanese-brand car, shop windows and billboards on Sunday.
Trending On Reuters
India gathered momentum from January to March to extend its lead as the world's fastest growing large economy, helping Prime Minister Narendra Modi craft an impressive sales pitch for meetings with investors in the United States next week. Full Article