Tokyo stocks ended flat on Thursday, giving up gains after electronics components makers such as Alps Electric Co Ltd fell following disappointing earnings by their US peers.
Alps Electric ended down 4.97 percent at 1,549 yen after US HDD industry leader Seagate Technology and rival Maxtor Corp delivered weaker-than-expected outlooks and raised concerns about an impending price war in the industry.
Japan's TDK Corp, the world's largest maker of magneto-resistive HDD heads, fell 2.26 percent to 7,800 yen.
Traders said institutional selling weighed on the market.
"Banks and corporations are taking profits on their shareholdings ahead of book closings (at the end of March), and that selling is cancelling out buying by foreign investors, who are still pretty bullish on Japanese shares," said Norihiro Fujito, a senior investment strategist at Mitsubishi Securities.
The tech-sensitive Nikkei average ended down 0.02 percent at 11,000.70, after a 0.91 percent decline in the previous session and well below its morning high of 11,115.13.
The broader TOPIX index put on 0.38 percent to 1,074.45.
Fujito said that despite Thursday's flat close, earnings optimism was likely to help the Nikkei break through a 2003 high of 11,238.63 as early as next week.
The latest major earnings report came after the bell from Japan's top household products maker Kao Corp, which said its net profit fell slightly in the April-December period, but the company was on track to notch up a record profit for the sixth straight year.
Its shares ended up 0.91 percent at 2,225 yen before the announcement.
Gainers outnumbered decliners 805 to 566.
Trading volume edged higher, with 1.43 billion shares changing hands on the first section versus 1.39 billion on Wednesday.
The day's biggest winner was the construction sector, which got a boost after Credit Suisse First Boston (CSFB) upgraded its rating on Shimizu Corp, Taisei Corp and Obayashi Corp to "outperform" from "neutral".
Shimizu, Japan's third-biggest builder, jumped 5.77 percent to 458 yen, helping lift the construction sector index by 3.6 percent to 553.13.
CSFB analyst Yoji Otani said in a report a pick-up in private capital investment was likely to help boost earnings in the sector, which has suffered in recent years from over-capacity and declining public investment as the government curbed spending.
Traders said investors were keenly anticipating the earnings reports of consumer electronics makers like Sony Corp, whose shares have risen sharply this year to date in expectation of solid results.
"Sony has been a laggard within its sector but looks to have turned things around with some strong sales over the Christmas sales period. A stronger-than-expected result would probably boost the whole market," said Mitsubishi Securities' Fujito.
Sony, whose shares have risen 18 percent this year to date, ended up 0.23 percent at 4,370 yen, while Panasonic brand maker Matsushita Electric Industrial Co ended up 0.19 percent at 1,623 yen after touching an 18-month high of 1,658 yen.
Still, some fund managers were taking a cautious view.
"I'd say the risk for Japanese stocks is still on the upside, but some of the consumer electronics issues are starting to look a bit overheated," said Marc Desmidt, director of the equities fund management team at Merrill Lynch Investment Managers in Tokyo.