By Kevin Buckland

TOKYO, Sept 28 (Reuters) - Japan's Nikkei fell on Wednesday to its lowest in nearly three months, as recession fears grew after Wall Street stocks sank deeper into a bear market and following a report that Apple dropped plans for more iPhones.

The Nikkei share average declined 2.21% to 25,984.51 by the midday break, falling below the psychological 26,000 level for the first time since July 4.

The index slipped steadily after opening about half a percent lower. Selling accelerated mid-morning, around the time Bloomberg reported Apple would drop a plan to boost production of its new smartphones after an anticipated demand surge failed to materialise.

Of the benchmark's 225 constituents, 220 stocks fell, three rose and two traded flat.

Every sector declined, including energy, which had been sharply higher for much of the morning after crude oil rebounded from multi-month lows overnight. Its 1.08% fall was the most moderate, while real estate was the worst performer with a 3.15% drop.

The broader Topix slid 1.72% to 1,840.78.

The big decline comes as Japan heads into the final days of its fiscal first half.

"Apple's decision to postpone an increase in production certainly is having an effect, but another big factor is that traders are speculating about supply and demand into the end of the first half. So, I want to see what happens following this round of selling," said Masayuki Otani, chief market analyst at Securities Japan Inc.

Investors globally are on edge as surging borrowing costs stoke fears of widespread recession, with most of the world's major central banks putting their focus squarely on tightening policies to contain super-heated inflation.

Drugmaker Eisai would have lent some support to Japanese stock indexes, but its shares had yet to trade amid a glut of buy orders after the success of a trial of experimental Alzheimer's treatment lecanemab.

The biggest drag on the Nikkei by index weighting was Uniqlo store operator Fast Retailing, down 4.44%, followed by startup investor SoftBank Group, off 2.76%, robotics giant Fanuc, which was 3.71% lower, and chip-making equipment-maker Tokyo Electron, which lost 2.24%.

The biggest percentage decliner was Nippon Sheet Glass , with a 7.25% tumble. (Reporting by Kevin Buckland; Additional reporting by Tokyo markets team; Editing by Subhranshu Sahu)