Japan's Nikkei share average fell 0.52 percent on Wednesday, snapping a three-day winning streak as profit-grabbing hurt recent gainers such as banks and insurers as well as carmakers including Honda Motor Co.
But buyers, especially foreigners, were still keen to snap up Tokyo stocks on optimism about the domestic economy after a landslide election win for Prime Minister Junichiro Koizumi spurred hopes for more structural reforms, analysts said.
"It's time for the market to take a breather," said Yusuke Sakai, manager of equities trading at Mizuho Securities.
"Recent leaders such as banks and carmakers paused as investors shifted their focus to lagging shares such as Mitsubishi Heavy Industries Ltd, second-section stocks and low-priced issues," he said. The Nikkei average of 225 blue chips shed 67.70 points to 12,834.25. On Tuesday it had registered its highest close since June 29, 2001.
The benchmark, which rose as high as 12,940.68 on Tuesday, has been trying to top the psychological barrier of 13,000, last touched on June 26, 2001.
The broader TOPIX index of all first-section issues also retreated from Tuesday's four-year closing high to close down 0.26 percent at 1,312.35.
The Tokyo market has been supported by growing optimism that Japan's economy will soon escape more than seven years of deflation. Underlining such optimism, government data on Monday showed that the economy grew more than initially estimated in the April-June quarter.
On Wednesday, Bank of Japan Deputy Governor Kazumasa Iwata said the central bank was now "very close" to ending its super-loose monetary policy.
Hawkish remarks from BoJ officials are raising expectations of a shift in monetary policy in early 2006, and helped the yield on benchmark 10-year Japanese government bonds touch 1.4 percent, the highest in three weeks.
Honda, Japan's third-biggest auto maker, fell 0.7 percent to 5,980 yen. Honda earlier rose to 6,040 yen, matching a life high marked last week. Toyota Motor Corp fell 0.4 percent to 4,700 yen a day after hitting a five-year closing high.
Profit-taking also hit insurers and banks, with Sompo Japan Insurance Inc tumbling 4 percent to 1,372 yen and Mitsubishi Tokyo Financial Group Inc falling 1.7 percent to 1.14 million yen.
Likewise, real estate stocks fell after jumping in recent sessions on optimism that official land price data, due out next week, will suggest the nation's land prices have bottomed out.
Mitsui Fudosan Co, Japan's largest property developer, gave up 1.6 percent to 1,599 yen and Mitsubishi Estate Co lost 1.2 percent to 1,446 yen.
But Mitsubishi Heavy, up 4.9 percent at 344 yen, and some other heavy machinery makers drew active buying as investors, betting on a further rise in Tokyo share prices, sought companies seen lagging behind the market's recent gains due to worries over higher prices of energy and materials. Tokyo Steel Manufacturing Co rose 2.1 percent to 1,625 yen after the Nihon Keizai newspaper reported that the company, Japan's biggest electric furnace steel maker, planned to invest 100 billion yen in a new steel mill.
Trade was active, although volume fell from Tuesday's level. About 2.4 billion shares changed hands on the Tokyo bourse's first section, up from last year's average of 1.45 billion. Decliners outpaced advancers 834 to 683.
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