MARKETS-JAPAN-STOCKS (UPDATE 4)

                                
 * Market thin ahead of U.S. investor return after holiday
                                
 * Gains in shares such as drug firms check losses
                                
 * 200-day moving average at 9,400 marks resistance
                                
 By Elaine Lies
                                
 TOKYO, May 26 (Reuters) - Japan's Nikkei stock average fell
0.9 percent on Tuesday, weighed down by tech shares such as TDK
Corp <6762.T>, though slides were checked by rises in shares such
as drugmakers and telecommunications companies.
 Toyota Motor Corp <7203.T> edged up after Merrill Lynch
upgraded it to "buy" from "underperform", citing growing profit
prospects for hybrid cars.
                                
 But trade was thin, with a number of investors waiting to see
how Wall Street will reopen after the Memorial Day holiday and in
the wake of a public holiday in the United Kingdom.
                                
 Investors were also waiting for cues from U.S. economic
indicators due out later this week and the fate of struggling
U.S. carmaker General Motors <GM.N>.
                                
 "The economies of both the United States and China aren't
just going to surge rapidly upwards, and what we're seeing today
is probably a bit of a reality check," said Koichi Ogawa, chief
portfolio manager at Daiwa SB Investments.
                                
 The benchmark Nikkei <.N225> shed 80.06 points to 9,266.94,
while the broader Topix <.TOPX> lost 0.4 percent to 879.76.
                                
 Others said the Nikkei was retreating after a failed attempt
on Monday to make a sustained break above resistance at 9,400,
about where its 200-day moving average comes in. The Nikkei rose
briefly as far as 9,402.76 on Monday.
                                
 But analysts said the chance of sharp falls was slight, with
index-related buying by newly set up funds supporting the market.
                                
 "Given that both the government and Bank of Japan have raised
their assessment of the economy, this is likely to spark buying
by retail investors, who may well come in on any dips," said
Katsuhiko Kodama, senior strategist at Toyo Securities.
                                
 "Basically, what we need to do now is verify economic trends
indicator by indicator."
The government raised its assessment of Japan's economy for
the first time in three years on Monday, saying the pace of
worsening is slowing as exports and industrial output are nearing
bottom, a week after the Bank of Japan did the same.
[ID:nTKX006251]
                                
 NORTH KOREA, GM
                                
 Yonhap news agency quoted a South Korean official as saying
that North Korea is ready to fire another short-range missile off
its west coast either on Tuesday or Wednesday, a day after
testing a nuclear device and firing off three short-range
missiles. [ID:nSEO203830].
                                
 "This isn't necessarily going to have much of an impact --
after all, the market shrugged off the nuclear test yesterday --
but it's also not particularly encouraging either," Daiwa SB's
Ogawa added.
High tech shares slipped, largely on profit-taking, with
Tokyo Electron <8035.T> down 3 percent to 4,240 yen, while TDK
slipped 3 percent to 4,150 yen. Industrial robot maker Fanuc
<6954.T> lost 1.3 percent to 7,440 yen.
                                
 Toyota edged up 0.8 percent to 3,590 yen after the upgrade,
which also cited signs of a bottoming out in global new car
demand.
                                
 "In the global car industry, following the downsizing of GM's
operations, only Toyota now stands as having a clear outlook for
market share and profit growth on the back of its eco-car
business," wrote analyst Koichi Sugimoto.
                                
 Pharmaceutical firm Daiichi Sankyo <4568.T> rose 3 percent to
1,800 yen and fellow drugmaker Eisai <4523.T> rose 0.3 percent to
3,180 yen. Phone company KDDI Corp <9433.T> rose 1.9
percent to 494,000 yen, becoming the biggest contributor to the
Nikkei 225 by volume weight.
                                
 GS Yuasa <6674.T> rose 1.6 percent to 715 yen after the
Nikkei business daily reported that the lithium-ion battery maker
will build a new factory with Mitsubishi Motors <7211.T> and
trading house Mitsubishi Corp <8058.T> to produce batteries for
electric vehicles.
                                
  Investors are still waiting for news on the fate of General
Motors <GM.N>, which faces a June 1 deadline to work out issues
with its creditors if it wants to avoid a bankruptcy filing.
                                
 Trade was subdued on the Tokyo exchange's first section, with
958 million shares changing hands compared to last week's morning
average of 1 billion.
                                
 Advancing shares outnumbered declining ones 811 to 742.
                                
 (Reporting by Elaine Lies; Editing by Joseph Radford)