Nikkei edges up but financials under pressure

                                
 * Nikkei edges up 0.3 percent in muted trade, autos gain
                                
 * Financials pressured by worry about overseas peers
                                
 * Tech shares slip as sector hit by possible failed deal
                                
 * Worry about earnings hits Hitachi Construction, Dentsu
                                
 By Elaine Lies
                                
 TOKYO, April 7 (Reuters) - Japan's Nikkei stock average edged
up 0.3 percent on Tuesday as the yen retreated against the
dollar, though banks lost ground as resurgent fears about their
overseas peers erased recent optimism.
                                
 Some tech shares slid after sentiment was bruised by worries
about the potential collapse of a takeover of Sun Microsystems
<JAVA.O> after a source with knowledge of the matter said talks
with IBM <IBM.N> to acquire its smaller rival broke down.
[ID:nL6578542]
 Investor nerves about the imminent corporate earnings season
led to selling of several shares, including Hitachi Construction
Machinery <6305.T>, after media reports forecasting losses.
                                
 Bank shares fell in the United States after a veteran analyst
warned banks still face fallout from excessive risk-taking and
warned of rising loan losses by the end of 2010. [ID:nN06322858]
"The market's stance on banks had been too optimistic
recently," said Nagayuki Yamagishi, a strategist at Mitsubishi
UFJ Securities.
                                
 "Some large U.S. banks have already passed stress tests, but
others haven't, and given that results are coming up soon, this
simply reignited investor uncertainty."
                                
 This nervousness was fuelled by a report that new forecasts
from the International Monetary Fund (IMF) are set to suggest
that toxic debts racked up by banks and insurers could spiral to
$4 trillion. [ID:nT186243]
                                
 "As a financial guardian the IMF may be correct to put out
this kind of forecast, but it's likely to add to the pessimistic
mood and shows the problems aren't solved," Yamagishi added.
                                
 Veteran banking analyst Mike Mayo, who recently transferred
Calyon Securities, initiated coverage of the U.S. banking sector
with an "underperform" rating, saying the sector's problems still
have further to run while government action may not help as much
as expected.
                                
 Analysts noted that the Nikkei has marked such sharp gains
recently and that profit-taking was long overdue, helping to
pressure financials.
                                
 "The Nikkei rose 25.6 percent from the March 10 low, giving
the market the sense that it's perhaps risen too high," said
Hiroichi Nishi, general manager at the equity division of Nikko
Cordial Securities.
                                
 The Nikkei on March 10 closed at 7,054.98, its lowest close
since Oct 1982.
                                
 Though it spent most of the morning in negative territory,
the benchmark Nikkei <.N225> gained 26.52 points to 8,884.45 and
was on track for a fifth successive day of gains.
                                
 The broader Topix <.TOPX> rose 0.5 percent to 835.46.
CARS CLIMB, TECHS TROUBLED
                                
 Though the dollar lost 0.2 percent against the yen, at 100.74
yen it was well off the day's lows, buoying some exporters
<JPY=>. Investors look favourably on a weaker yen as a strong yen
eats into exporter profits when repatriated.
                                
 Sony Corp <6758.T> rose 1 percent to 2,445 yen and Panasonic
Corp <6752.T> edged up 0.5 percent to 1,248 yen.
                                
 Automakers extended gains, bolstered by the continuing
positive impact of report at the weekend that Japan is
considering a subsidy for purchases of hybrids and other
low-emissions vehicles.
                                
 Honda Motor Co <7267.T> gained 2.9 percent to 2,825 yen and
Toyota Motor Corp <7203.T> rose 0.3 percent to 3,750 yen. Nissan
Motor Co <7201.T> gained 1.5 percent.
                                
 Mitsubishi UFJ Financial Group <8306.T>, Japan's top lender,
lost 1 percent to 508 yen, becoming the biggest drag on the
Nikkei 225 by volume weight. No. 3 bank Sumitomo Mitsui Financial
Group <8316.T> edged down 0.6 percent to 3,590 yen.
Mizuho Financial Group <8411.T> pared earlier losses to
finish the morning flat.
                                
 Kyocera <6971.T> fell 1.9 percent to 6,780 yen and Hitachi
Ltd <6501.T> lost 0.6 percent to 309 yen.
                                
 Hitachi Construction Machinery Co Ltd slid 2.8 percent to
1,375 yen after the Nikkei business daily said the earth-moving
equipment maker was likely to post a 50 percent fall in operating
profit in the year to March 2010 on declining overseas sales.
                                
 Some 1.1 billion shares were traded on the Tokyo Exchange's
first section, roughly in line with last week's morning average.
                                
 Advancing shares outnumbered declining ones by 894 to 657.
 (Reporting by Elaine Lies; Editing by Edwina Gibbs)