* Lowest volume since Aug 9, second lowest this year
* Nikkei down 0.7 pct on the day, 0.2 pct on the week
* Foreigners net buyers of Japan stocks for 7th straight week
By Antoni Slodkowski
TOKYO, Dec 24 (Reuters) - Japan's Nikkei average dropped 0.7
percent on Friday, coming off a seven-month high, as the yen
strengthened against the dollar and the euro in holiday-thinned
trade.
But general bullishness in global equities markets and a
positive outlook for the Nikkei in 2011 will provide support for
the market during the last week of trade for the year, investors
said.
Trading volume dropped to its lowest since Aug. 9 and marked
its second lowest this year, ahead of holidays in other major
markets.
Less than 1.3 billion shares changed hands on the Tokyo Stock
Exchange's first section, well below last week's average of
around 2.1 billion shares.
"The Nikkei lost steam today, because of the stronger yen,
but the downward move is exaggerated by very low volume. Overall
sentiment remains intact," said Yumi Nishimura, a senior market
analyst at Daiwa Securities Capital Markets.
"Everyone is already thinking about the next year, and with
the Nikkei set to post strong gains in 2011, major investors are
waiting on the sidelines to take up big positions in early
January," she said.
But electronics maker Toshiba Corp gained 0.7 percent and was
the third-most actively traded stock by turnover after the Nikkei
business daily reported it will outsource fabrication of system
chips to South Korea's Samsung Electronics Co <005930.KS>,
freeing up resources for its memory chip operations.
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The benchmark Nikkei <> fell 67.29 points to 10,279.19.
It had climbed to its highest level since May 14 on Wednesday.
Markets were closed on Thursday for a public holiday.
The broader Topix index <> lost 0.5 percent to 901.66.
The Nikkei has rallied more than 12 percent since early
November as foreign fund managers aggressively added Tokyo
equities, which, having lost around 2.5 percent in the year to
date, were considered cheap.
Foreigners' net purchases of Japanese stocks last week hit
their highest since April, rising to a net 224.4 billion yen
during the week to Dec. 18, Finance Ministry data showed. []
Foreign investors were net buyers of Japanese stocks for a
seventh straight week, with total net purchases during those
seven weeks of 1.05 trillion yen.
But some traders were worried that a rift within Japan's
ruling Democratic Party over scandal-plagued powerbroker Ichiro
Ozawa is distracting the government from tackling tough policy
decisions and complicating prospects for passing laws.
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TECHNICALS SOLID
The positive mood in the Tokyo market was bolstered by solid
long-term technical indicators, with the Nikkei keeping well
above immediate technical support at its 25-day moving average, a
gauge often used by Japanese traders, now at 10,179.41.
Technical sentiment could become even stronger should the
Nikkei break through resistance of 10,420.74, the level where
futures and options contracts expired in December settled earlier
this month, traders said.
"Buying by foreigners is very likely going to continue into
the last week of the year. I doubt today's losses will have a
huge impact on the positive mood," said Kenichi Hirano, operating
officer at Tachibana Securities.
Precision machinery makers with heavy exposure to euro zone
countries, such as Kyocera Corp <6971.T> and Olympus Corp
<7733.T>, were among the biggest losers after the euro hit a
three-week low against the yen on Thursday. Kyocera fell 1.1
percent and Olympus lost 1.4 percent.
In contrast, Inpex Corp <1605.T>, Japan's top oil and gas
developer, jumped 3 percent as European benchmark Brent crude oil
climbed to its highest price in more than two years, supported by
unusually frigid weather that has fuelled demand and depleted
supplies.
(Editing by Chris Gallagher)
