* Nikkei down 1 percent, Topix falls 0.8 pct
* Losses in other Asian markets sour sentiment in Tokyo
* Volume at 2-mth lows ahead of Christmas
By Ayai Tomisawa and Antoni Slodkowski
TOKYO, Dec 20 (Reuters) - Japan's Nikkei dropped 1 percent in
thin trade on Monday, with sentiment soured by declining Asian
markets.
Asian shares eased, lead by a 0.8 percent drop in the Seoul
market <> as tensions heightened on the Korean peninsula.
"Selling is due to external reasons, and as there are fewer
foreign participants in the market, low volume is causing
volatility," said Hideyuki Okoshi, general manager at Chuo
Securities.
The Nikkei <> fell 1 percent, or 107.50 points, to
10,196.47, coming closer to resistance at 10,116.53, the level of
its 25-day moving average, a gauge frequently used by Tokyo
investors.
The broader Topix index <> declined 0.8 percent to
896.30.
China's key stock index fell 3 percent late on Monday
morning, with a shortfall of money flows ahead of the year-end
amid a tight monetary environment pressured the market.
Shanghai's composite index <> dropped to 2,804.6 points
by midday after edging lower nearly every day last week.
[]
After hitting its highest closing level since May last
Tuesday, the Nikkei stayed flat for the rest of the week as
domestic investors aggressively took profits on its rally of
around 12 percent since the beginning of November, while foreign
investors continued buying financial shares seen as undervalued.
"Generally, with exchange rates steady and no big negative
factors, there are no major incentives for the Nikkei to move in
either direction," said Mitsushige Akino, general manager at
Ichiyoshi Investment Management.
LOW VOLUME
Trading volume was at its lowest in nearly two months, with
around 1 billion shares changing hands on the Tokyo Stock
Exchange's first section at 0406 GMT, putting it on course to
stay well below last week's closing average of around 2.1 billion
shares.
Market players said volumes may dry up further this week as
foreign investors who have been net buyers of Japanese equities
for the last six weeks, helping push the index higher, will be
less active as the Christmas holidays approach.
"There are high expectations for Japanese equities to do well
in January-March so investors won't rush to take profits either,
helping the Nikkei stay around the 10,300 level," Akino said.
Baby goods maker Pigeon Corp <7956.T> rose 2.3 percent to
2,793 yen after Credit Suisse started coverage of the company
with an "outperform" assessment.
Honda Motor <7267.T> rose 0.8 percent to 3,260 yen after
saying on Friday it would target sales in China of 730,000
vehicles in 2011, for growth of more than 10 percent from the
650,000 estimated for this year. []
Tokyo shares face strong technical resistance at 10,420.74,
the level where futures and options contracts expiring in
December settled earlier this month, traders said.
Although Yumi Nishimura, a senior market analyst at Daiwa
Securities Capital Markets, said that if there was some positive
news later in the week, such as a softening of the yen against
the dollar, the Nikkei could quickly spike to around 10,500
before the end of the year.
Tokyo investors were closely monitoring the situation on the
Korean peninsula, where North Korea's military has raised an
alert for some artillery units ahead of a planned live-fire drill
by South Korea. []
A five-notch downgrade of Ireland by Moody's and budget
warnings by the International Monetary Fund on Friday reminded
markets of ongoing euro zone debt woes, and worries over Europe
will likely weigh on market sentiment in the last two weeks of
2010.
(Editing by Joseph Radford)
