Japan's Nikkei average fell 0.02 percent on Thursday as investors turned cautious and sold recent gainers such as steel makers, but market sentiment remained firm with auto stocks ending higher after a brokerage upgrade. Yahoo Japan Corp and other stocks seen as having strong earnings prospects also drew buyers.
Analysts said that although some investors were wary over the Nikkei's rise on Wednesday to a 14-week closing high just before the peak of Japan's earnings season, strong economic growth in China and the United States could help the share average test the 12,000 level.
The Nikkei ended down 2.62 points at 11,786.73. It briefly rose to 11,867.23 in morning trade.
The broader TOPIX index dipped 0.13 percent to end at 1,194.76 after hitting 1,202.09, a hair below this year's intraday high of 1,206.93 marked in March.
Steel stocks were sold after gains on Wednesday, with Nippon Steel Corp, Japan's biggest steel maker, falling 0.7 percent to 274 yen. It had risen 1.9 percent on Wednesday after it said it would trim its output to counter a fall in prices. Rival JFE Holdings Inc slipped 0.7 percent to 2,875 yen after rising 2.3 percent in the previous session.
Auto stocks gained after UBS raised its investment stance on the sector to "bullish", changing its view for the first time since October 2004. It cited a better earnings outlook, undemanding valuations and waning currency and political risks.
Industry leader Toyota Motor Corp, which also benefited from an individual upgrade, rose 0.7 percent to 4,230 yen. It briefly hit a nine-month high of 4,250.
Nissan Motor Co put on 0.6 percent to 1,162 yen and Honda Motor Co climbed 0.4 percent to 5,740 yen.
Yahoo Japan Corp rose 2.6 percent to 236,000 yen after Japan's top Internet portal reported a 24.1 percent rise in profit for the April-June period helped by a surge in Web advertising. Yahoo lost 1.3 percent on Wednesday after US Yahoo Inc posted disappointing earnings.
Hoya Corp fell victim to profit-taking and ended down 2.2 percent at 13,530 yen after jumping 7.2 percent on Wednesday on stronger-than-expected earnings and a share-split announcement.
A strong performance on Wall Street helped Advantest Corp, the world's largest maker of chip testing devices, add 1.8 percent to reach 8,320 yen.
Elpida Memory Inc, the world's fifth-largest DRAM chip maker, ended down 3.3 percent at 3,480 yen. After the market closed, Elpida posted a slightly larger-than-expected quarterly loss due to a slide in memory chip prices. It kept its full-year profit forecasts.
Trade volume increased for the third straight session, with 1.6 billion shares changing hands on the Tokyo bourse's first section, above last year's daily average of 1.45 billion. Decliners outnumbered advancers 827 to 647.
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