*Nikkei down 2.7 pct after gaining 10 pct previous day
*Investors wary before BOJ decision, 3-day weekend
*Carmakers hit after Mazda, Mitsubishi cut forecasts
(Adds details, stocks)
By Elaine Lies
TOKYO, Oct 31 (Reuters) - Japan's Nikkei average share
slipped 2.7 percent on Friday as investor nervousness before a
Bank of Japan rate decision led to profit-taking selling, with
carmakers like Honda Motor Co <7267.T> hit by gloom about their
prospects.
Though many exporters suffered after the yen edged up
slightly against the dollar, not all were sold, with Canon Inc
<7751.T> and Advantest Corp <6857.T> rising.
Expectations are high that Japan's central bank will join the
wave of rate cuts by countries including the United States and
China to lower its already rock-bottom interest rates, but
investors still moved to lock in profits after the Nikkei surged
more than 10 percent on Thursday.
"There's a bit of a tug-of-war going on, since investor
sentiment has changed slightly on the sense the market may have
bottomed out for now, and people are willing to buy," said Tomomi
Yamashita, a fund manager at Shinkin Asset Management.
"Though the impact on the stock market would be terrible if
the BOJ didn't cut rates, we have to consider the risk they might
not. Expect selling until the decision is out, then a jump if
they cut rates, then perhaps more selling."
The benchmark Nikkei <> had shed 245.64 points to
8,784.12 in active trade after rising almost 2,000 points over
the previous three days. It has lost 22 percent so far this month
and 43 percent this year.
The broader Topix <> lost 1.7 percent to 883.88.
Trade was brisk on the Tokyo exchange's first section, with
1.19 billion shares changing hands, compared with last week's
morning average of 986.5 million.
The central bank may halve its key interest rate to 0.25
percent as Japan feels the effect of the crisis spreading through
the country's key export markets. It may also announce other
measures to support financial markets. []
Perhaps strengthening the case for Japan's first rate cut in
seven years was a dip in annual inflation to 2.3 percent, as oil
prices <CLc1> slide from record highs earlier this year.
[]
Many in the market thought a rate cut was virtually a given.
"They want to send a message of coordinated international
action about the poor economy, a message that is extremely
important for markets," said Yutaka Miura, a senior technical
analyst at Shinko Securities.
But others said the positive impact of a rate cut could well
be limited and that having exhausted such a major potential
factor could lead to selling anyway.
"Plus, if they cut rates this will mean they've done
virtually everything they can," Shinkin's Yamashita added.
CARS CRUMBLE
Investors are also nervous about holding positions over a
three-day weekend, with Monday a holiday in Japan. On a long
weekend in September, Lehman Brothers collapsed.
Most automakers were suffering, with sentiment dented by
Mazda Motor Corp <7261.T> and Mitsubishi Motors Corp <7211.T>
lowering their profit forecasts on Thursday, joining Honda in
predicting bigger falls in profits this year.
Nissan Motor Co <7201.T> is due to announce its first-half
results after the close, and they are expected to be weak due to
the deteriorating U.S., European, Japanese markets and the
stronger yen.
Honda lost 6.7 percent to 2,575 yen, Toyota Motor Co <7203.T>
was down 1.3 percent to 3,850 yen, and Mazda shed 11.7 percent to
218 yen. But Mitsubishi Motors gained 1.5 percent to 134 yen.
Not all the news was grim, with some shares boosted by
bargain-hunting at the falls.
Canon rose 11.2 percent to 3,380 yen, becoming the biggest
contributor to the Nikkei 225 by volume weight. Advantest rose
3.1 percent to 1,399 yen.
Japan Tobacco <2914.T> gained 2.4 percent to 339,000 yen
after raising its operating profit forecast for the business year
to March by 11 percent to 348 billion yen ($3.5 billion).
Japan's largest tobacco maker said robust tobacco sales
overseas and payment related to its osteoporosis licensing
agreement with U.S. firm Merck & Co Inc <MRK.N> contributed to
the upward revision of its earnings forecasts.
Declining stocks outpaced advancing ones, 933 to 685.
(Reporting by Elaine Lies)
