Japan stocks slip on profit-taking, Fed worries

TOKYO, Oct 31 (Reuters) Japanese stocks edged lower on Wednesday as profit-taking emerged in shipping stocks such as Mitsui OSK Lines Ltd amid growing nervousness about whether the Federal Reserve will cut rates.

Market participants were also rushing to lock in profits on companies that have posted good earnings results, such as Komatsu Ltd, which on Tuesday lifted its annual outlook for a second time this year after first-half profit surged more than 50 percent.

A report showing U.S. consumer confidence at a two-year low stoked worries about the U.S. economy and consumer spending and left Wall Street vulnerable, while growing speculation that the Fed may leave interest rates unchanged at its meeting later today is weighing on Tokyo as well.

''The market had thought a rate cut was virtually guaranteed, but now it seems there's about a 20 percent chance the Fed may not cut, so it's hard to take out large new positions,'' said Norihiro Fujito, general manager of the investment research and information division at Mitsubishi UFJ Securities.

''People also want to lock in profits in case the market turns volatile ahead of the meeting, and this is particularly true of companies that have announced good earnings the past few days.'' A flood of results due out from Japanese firms today, including Mitsubishi Corp, Mitsubishi Estate, Fuji Heavy Industries Ltd and Pioneer Corp -- most of them late in the day -- may also limit activity.

A sharp fall in oil prices led to selling of trading firms and energy-linked companies as well, contributing to the overall selling mood.

At 0100 GMT the benchmark Nikkei was down 0.11 percent at 16,632.85, down 18.16 points. The broad TOPIX index was down 0.24 percent or 3.93 points, at 1,603.59.

OIL IMPACT U.S. crude slipped below after hitting a record .80 earlier this week, prompting sales in related firms.

Inpex Holdings Inc, Japan's top oil developer, slid by 2.3 percent to 1.26 million yen, while Nippon Oil T, the country's top oil refiner, slid by 1.6 percent to 1,022 yen.

Mitsubishi Corp, whose results are due out later in the day, was down by 2.7 percent at 3,600 yen while fellow trading firm Marubeni slid 1.8 percent to 989 yen. Itochu Corp was down 1.7 percent at 1,424 yen.

Shipping stocks slid as well, with Mitsui OSK Lines down 3.9 percent at 1,880 yen despite good earnings results on Tuesday.

Murata Manufacturing Co Ltd plunged 11.2 percent to 6,970 yen after the electronics parts maker's first-half operating profit missed market expectations, prompting UBS to downgrade the stock to ''neutral'' from ''buy'' and Daiwa to lower its earnings estimate.

But shares of Matsushita Electric Industrial Co Ltd rose 3.3 percent to 2,180 yen after the Panasonic maker posted a surprise 3 percent gain in quarterly operating profit on cost cuts and strong sales of cameras and TVs.

Reuters BJR VP0705