* Nikkei down 1.5 pct, reversing early 1 pct rise
* Index up for 5th straight week, longest such run since March
By Dominic Lau
TOKYO, July 19 (Reuters) - Japan's Nikkei average shed 1.5 percent on Friday, reversing an early rise to an eight-week peak and ending a five-day winning run, with traders citing selling of futures led by global macro funds before the upper house election this weekend.
The Nikkei ended down 218.59 points at 14,589.91, holding below 14,596, the 61.8 percent retracement of its slide from May 23 to June 13. Earlier in the session, it climbed to 14,953.29.
Yet the benchmark was up 0.6 percent on the week, the fifth straight weekly gain - its longest such winning streak since mid-March.
"It was close to 15,000 this morning. A lot of potential good election news is priced in, so people are coming in to sell futures, probably hedging some upside or something like that," said a senior trader at a foreign bank in Tokyo.
"I think it could be the usual suspects ... global macro guys selling futures," he said.
Japan is to hold a national election for parliament's upper house on Sunday, with Prime Minister Shinzo Abe's Liberal Democratic Party (LDP) expected to win a hefty majority.
His victory will end a "twisted parliament" in which the opposition controls the upper chamber, allowing him to focus on his policies, including structural reforms, to end stagnation in the world's third-largest economy.
Japanese companies want the LDP to win Sunday's election, but they worry a big victory will allow Abe to prioritise nationalist policies at the expense of building on gains wrought by his radical stimulus measures, a Reuters poll showed.
Abe's fiscal expansionary policy, coupled with the Bank of Japan's aggressive monetary stimulus, has pushed the benchmark Nikkei up 40 percent this year, while the yen has fallen 15 percent against the dollar.
Driven by the strong gain, Japanese equities carried a 12-month forward price-to-earnings ratio of 14.5, according to Thomson Reuters Datastream. That compared with 13.8 for the U.S. S&P 500.
"The first arrow of Abenomics has been a striking success. The second arrow, expansionary fiscal policy, has given a caffeine kick to the economy but we expect the effects to soon wear off," Citigroup wrote in a note last week.
"The government will need to beef up the third arrow, its growth strategy, after the upcoming election, but there are formidable obstacles to boosting Japan's potential growth rate."