Nikkei pauses after jump to 3-mth high

TOKYO, Sept 5 (Reuters) The Nikkei average drifted in and out of positive territory by mid-morning on Tuesday as investors took profits on Olympus Corp. and other blue-chips that helped push the market to its highest in more than three months the previous day.

Traders said the market was poised to take a breather from a technical standpoint. The Nikkei's 1.4 percent rally on Monday put the 14-day relative strength index at 71.5, with a reading above 70 usually pointing to limited upside in the near term.

''We were getting a little overheated looking at the technicals.

But European stocks were solid, so there's little downside risk,'' said Ken Masuda, a senior dealer at Shinko Securities, referring to a 0.45 percent rise in European shares.

Investors were also a bit wary of big purchases due to a lack of direction Wall Street, which was closed on Monday for the Labor Day holiday, Masuda said.

The Nikkei was up 0.05 percent or 8.35 points at 16,366.42 by 0051 GMT after opening a tad lower. The broader TOPIX index was up 0.01 percent at 1,649.43.

Shares of camera and endoscope maker Olympus were down 0.85 percent at 3,510 yen after hitting a 5-month high on Monday while Fuji Photo Film Co. gave up 1.14 percent to 4,330 yen after climbing to its highest in more than 4 years.

Among gainers, Nippon Steel Corp. rose 0.6 percent to 502 yen after business daily Nihon Keizai reported that Japan's biggest steel maker and South Korea's POSCO are in talks to jointly develop mines, supply each other with semi-finished products and lift their cross-shareholdings.

Telecoms and Internet firm Softbank Corp. also rose, putting on 3.66 percent to 2,265 yen.

Softbank has now gained 13.5 percent since marking a one-month intraday low of 1,995 yen on Aug. 28, hit by a bearish report by Lehman Brothers.

REUTERS DH PM0741