Nikkei falls as Honda, steel firms hit

TOKYO, Jan 5 (Reuters) The Nikkei average fell 1.7 percent on Friday, retreating from an eight-month high as investors took profits in Honda Motor Co. Ltd., steel firms and others that booked aggressive gains during a year-end rally.

Honda and other exporters such as Fanuc Ltd. were also hit by gains in the yen, which rose on speculation the Bank of Japan could lift interest rates as early as this month.

Investors were also paying attention to a media report that North Korea was preparing a nuclear test.

''The market has risen considerably of late, so I think investors see this as a good place to take profits,'' said Katsuhiko Kodama, a senior strategist at Toyo Securities.

''But right now the currency is the main factor ... For the short-term at least it is hard to read what is going to happen in the currency market.'' The Nikkei was down 301.31 points at 17,052.36. The broader TOPIX index fell 1.35 percent to 1,676.08.

The benchmark Nikkei surged nearly 6 percent last month as Japanese stocks staged a year-end rally after months of underperformance compared with other major equity markets.

The Dow Jones industrial average rose less than 2 percent in December, while London's FTSE 100 gained less than 3 percent.

Honda fell 2.7 percent to 4,610 yen. The auto maker had gained nearly 19 percent in the past month.

Steel makers such as Nippon Steel also logged big losses. Nippon Steel fell 5.7 percent to 627 yen after surging nearly 26 percent over the past month.

Fanuc, a maker of industrial robots, fell 3 percent to 11,400 yen, hurt in part by gains in the yen.

A stronger yen is a minus for firms that make the bulk of their sales abroad because it eats into profits when earnings from abroad are brought home.

Investors were also concerned about the effect on financial market sentiment if North Korea conducted another nuclear test.

ABC News reported that Pyongyang appeared to have made preparations for a new test to follow its first one conducted on Oct. 9.

However, U.S. officials said the United States had no evidence to suggest such activity in North Korea.

REUTERS CS SSC1124