Japanese stocks closed softer in subdued trade on Tuesday as sharp gains the previous day prompted investors to take profits from technology and other exporters ahead of a rate decision by the US Federal Reserve next week.
Brokerages suffered the biggest losses, with third-ranked Nikko Cordial Corp tumbling almost seven percent after US financial conglomerate Citigroup Inc said it would almost halve its stake in the company.
Despite the market's retreat, traders said gains in recent losers such as steel makers showed healthy investor demand for bargains given strong economic and corporate fundamentals.
The Nikkei average finished at the day's high of 11,581.27, down 0.16 percent from the previous close. On Monday it jumped 1.92 percent, flirting with an eight-week closing high of 11,641.72 marked on Wednesday last week.
The broader TOPIX index closed 0.25 percent lower at 1,162.31.
Analysts said that with a lack of fresh trading incentives at home, the market's focus was on the Fed's policy-setting meeting, the handover of power in Iraq and the Bank of Japan's quarterly "tankan" corporate sentiment survey, all scheduled for next week.
"The consensus is a 0.25 percentage point rise (in US interest rates), and the possibility of a 0.50 point increase looks almost nil. But until everything gets clearer, this sort of directionless trade is inevitable," said Tatsuyuki Kawasaki, director of equities trading at Kaneyama Securities.
The expected change in US interest rates will be closely watched for its effect on demand in Japan's largest export market and on US stock prices.
Trade was thin with only 1.084 billion shares changing hands on the Tokyo bourse's first section, down from Monday's 1.105 billion and last week's daily average of 1.147 billion. Decliners outnumbered advancers 822 to 592.
One fund manager said a directionless market was not necessarily bad for investors since they were able to take time to look for bargains. The Nikkei has been moving mostly in a range of between 11,000 and 11,600 since late May.
"Micro and macro economic fundamentals are strong, so the Nikkei is unlikely to break below 11,000 in the near future. Neither is it likely to clear 12,000 decisively because the second-half earnings outlook is uncertain," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"But it's good to see that the market is content to be in the middle of this anticipated range. That means it's a chance for us to hunt for bargains," he said.
Steel shares bounced back, following recent pressure from a fall in commodity prices and fears of an imminent rate rise in China. Industry leader Nippon Steel Corp rose 1.84 percent to 221 yen.
In contrast, chips-to-computers conglomerate Fujitsu Ltd fell 2.06 percent to 713 yen after rising 1.25 percent on Monday.
Sharp Corp, the world's biggest maker of liquid crystal display televisions, slumped 1.14 percent to 1,645 yen and Canon Inc, Japan's biggest office equipment maker, was down 0.7 percent at 5,640 yen.
Shares of Toyota Motor Corp, Japan's largest auto maker, lost 0.68 percent to 4,350 yen a day after hitting a three-year closing high of 4,380 yen.
Nikko Cordial, the second-most actively traded stock by volume, skidded 6.85 percent to 517 yen after Citigroup said it would cut its stake in the brokerage to around 12 percent from 21 percent, unloading about 180 million Nikko shares in the market.
The most active issue was troubled auto maker Mitsubishi Motors Corp, which shot up 13.45 percent to 194 yen a day after plunging to a life low of 157 yen.
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