Nikkei falls as Honda, exporters head lower

TOKYO, July 12 (Reuters) The Nikkei average lost 0.68 percent on Wednesday as investors sold exporters such as Honda Motor Co. Ltd.

on expectations that a stronger yen and higher oil prices will eat into earnings.

Analysts said investors were tending towards caution ahead of the Bank of Japan's policy meeting later this week, and because of concerns about global security following a series of explosions in India's financial hub of Mumbai.

''A lot of people see the yen as getting stronger from here on out, and I think that is a bit of a worry for investors,'' said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

''There are a lot of reasons to be concerned at the moment,'' Ogawa said. ''The market really needs a positive catalyst, for example a big drop in oil prices.'' The Nikkei finished the morning 105.93 points lower at 15,367.89. The broader TOPIX index was down 0.85 percent at 1,572.37.

YEN RISE SEEN Expectations that the Bank of Japan will raise interest rates for the first time in six years later this week was leading some investors to bet the Japanese currency would gain ground in the coming months, said Hiroyuki Nakai, chief strategist at Tokai Tokyo Securities.

''From here on out, currency will become a big point for the market. I think the yen is likely to advance against the dollar,'' he said. ''From this summer and into the autumn, we have to pay attention to the currency.'' The yen was at 114.20 to the dollar, not far from a one-month high.

A stronger yen is a minus for companies that make the bulk of their sales outside of Japan as it erodes profits when dollar-denominated revenues are brought home.

Honda was down 2.7 percent at 3,570 yen.

Fanuc Ltd. a maker of industrial robots, was down 2.5 percent at 9,750 yen, becoming the biggest drag on the Nikkei.

Toyota Motor Corp. fell 1.3 percent to 5,940 yen. The auto maker said on Tuesday that Japanese police brought a criminal case against three current and former company officials on suspicion that they delayed filing a recall report.

OIL PRICES EYED Higher oil prices also helped drag on the market after U.S.

crude oil futures ended higher on Tuesday, closing at .16 per barrel.

''It will not be good for the market if oil prices hit . If we don't see some correction, if oil prices don't drop back into the range, it will be tough for stocks,'' Daiwa's Ogawa said.

High oil prices are seen as a negative for stocks because they crimp consumer spending and raise corporate costs.

However, shares of energy-related firms gained, with INPEX Holdings Inc. advancing 3 percent to 1.03 million yen.

Many investors chose to take a cautious tack ahead of the Bank of Japan meeting and after the attacks in India, Tokai's Nakai said.

''With the Bank of Japan policy meeting finally starting tomorrow, a lot of investors want to sit and wait,'' he said.

''Also India, our neighbour in Asia, was hit by a terror attack....

I think investors are using that as an excuse to sit out for the moment.'' Elsewhere, shares of Chubu Electric Power Co. dropped 5 percent to 2,880 yen after Japan's third-largest utility company cut its earnings projections on Tuesday due to an unplanned unit shutdown.

Trade increased, with 790 million shares changing hands, up from 704 million shares on Tuesday morning. Decliners swept past advancers by a ratio of more than four to one.

REUTERS SY RK0939