Nikkei retreats from 5-month high, yen drags

Tokyo, Oct 17: The Nikkei average edged down 0.27 percent on Tuesday, retreating from a five-month high, as Honda Motor Co.

Ltd. and other exporters fell on a higher yen while investors grabbed profits amid caution ahead of corporate earnings reports in Japan and the United States.

NTT Data Corp. lost 3.1 percent to 572,000 yen after Merrill Lynch downgraded the stock to ''neutral'' from ''buy'' while Sony Corp. slipped on a news report that the company is likely to cut its earnings forecast.

''Gains in U.S. stocks and the cheap yen were a boost for Japanese stocks. Now that the yen has strengthened a bit, that gave an excuse for investors to take profits,'' said Takashi Matsumoto, senior strategist at Okasan Securities Co. Ltd.

Investors were taking a cautious tack ahead of earnings results from U.S. tech bellwether Intel Corp. later in the day and results from corporate Japan starting next week, analysts said.

''The market is basically in an upward trend, with the Nikkei aiming for 17,000. But investors are wary ahead of Intel and Yahoo earnings,'' said Kazuhiro Takahashi, general manager in the equity marketing department at Daiwa Securities SMBC Co. Ltd., referring to Yahoo Inc.

The Nikkei was 44.68 points lower at 16,648.08 as of 0454 GMT. On Monday it booked its highest close since May. The broader TOPIX index was down 0.29 percent at 1,641.31.

The dollar was trading around 119.05 yen off the 10-month high of 119.88 yen struck on Friday.

Honda, Japan's third-biggest car maker, lost 1.7 percent to 4,110 yen. Industry leader Toyota Motor Corp gave up 1.5 percent to 6,790 yen, after hitting its all-time high of 6,990 yen on Friday.

Among other auto stocks, Nissan Motor Co. Ltd. fell 2.2 percent to 1,366 yen after Deutsche Securities lowered its rating on the company to ''hold'' from ''buy'' on Tuesday, citing recent advances in the share price.

Digital camera maker Canon Inc, which makes three quarters of its sales in overseas, slipped 0.2 percent to 6,450 yen.

Shares of Sony snapped a four-day winning streak, dropping 0.8 percent to 4,840 yen after the Nihon Keizai Shimbun said on Tuesday the company is likely to lower its annual earnings forecast due to a widening recall of PC batteries and losses in its game division.

Tokyo stocks were largely unmoved by reports that North Korea could be preparing to conduct a second nuclear test.

But while Japanese investors have overlooked issues regarding North Korea so far, a second nuclear test could change that, said Soichiro Monji, chief strategist of equity management at Daiwa SB Investments.

''If North Korea were to engage in another nuclear test, that would not be a positive, and investors would start to worry about what (North Korea) plans to do next,'' Monji said.

''Unlike the last time, that would probably cause stocks to fall for 2 or 3 days.''

REUTERS