Nikkei hurt by profit-taking, turnover at 2010 high

* Nikkei down 0.7 percent

* Nikkei hits 7-mth high at open then falters

* SQ futures and options settle at 10,420.74

By Antoni Slodkowski and Ayai Tomisawa

TOKYO, Dec 10 (Reuters) - Japan's Nikkei average fell 0.7
percent on Friday, as a higher-than-expected settlement for
futures and options prices encouraged investors to take profits
on a strong rally for the benchmark since the start of November.

While sentiment for the Nikkei remains robust, analysts say
technical signs that the market is overbought and the approach of
the year-end was keeping a lid on potential near-term gains.

The closely watched up-down ratio for the Tokyo Stock
Exchange's first section stood at 163 after Thursday's close, the
highest level on record and well above the 120 level that is said
to indicate an overheated market.

It is calculated by dividing the 25-day moving average of
stocks that gained by 25-day moving average of those that fell.

"On top of profit-taking and overheating of the market, some
foreign investors are unloading positions and hedging ahead of
the Christmas break," said Hiroaki Kuramochi, chief equity
marketing officer at Tokai Tokyo Securities.

In active trade, the benchmark Nikkei .N225 closed the day
down 73.93 points at 10,211.95 but it added 0.3 percent for the
week.

It hit a fresh seven-month high of 10,373.70 shortly after
the open but profit-taking kicked in after futures and options
contracts expiring in December were estimated at a
stronger-than-expected 10,420.74. The settlement figure was later
confirmed after the close of trade.

The broader Topix index .TOPX fell 0.4 percent to 888.22.

The settlement for futures and options as well as continued
interest from foreign investors, who are now turning their
attention to lagging sectors such as insurers, helped boost
turnover to a high for 2010.

Turnover on the Tokyo Stock Exchange's first section climbed
to 2.55 trillion yen ($30.5 billion), while some 3.1 billion
shares changed hands, the highest level since Jan. 14.

LONG-TERM OUTLOOK POSITIVE

Despite a climb of almost 12 percent since the start of
November, the Nikkei is still down about 3.2 percent for the year
to date. By contrast, Hong Kong's Hang Seng Index .HSI has
gained 5.6 percent while the Standard and Poor's 500 index .SPX
is up 10.6 percent.

Market players said the Nikkei still has room to move higher.

"The market will want to make sure that the Nikkei stays
above 10,200 next week and it will start testing new highs again
in the third week of December," said Hideyuki Ishiguro, a
strategist for Okasan Securities, who predicts the Nikkei will
end 2010 around the 10,800 mark.

The Nikkei's 25-day moving average surpassed its 200-day
moving average on Thursday, forming a "golden cross", suggesting
the benchmark will maintain positive momentum longer-term.

On Friday, insurance stocks were in favour after Deutsche
Securities began coverage, giving Dai-ichi Life Insurance
(8750.T) and Sony Financial Holdings (8729.T) "buy" ratings.

"Japan's life insurance market is the second-largest in the
world, and margins on straight life insurance and medical
insurance products are noticeably higher in Japan than in other
regions," said the report.

Dai-ichi Life shares gained 2.1 percent to 133,500 yen while
Sony Financial jumped 3.7 percent to 308,500 yen.

Sapporo Holdings jumped 8.9 percent to 367 yen after U.S.
fund Steel Partners cut its stake by more than one-third as the
activist fund continues to retreat from Japanese equities.

Nikon Corp (7731.T) fell 3.1 percent to 1,620 yen after
Goldman Sachs cut its rating to "sell" from "neutral" and added
the stock to its "conviction sell" list. It lowered its earnings
estimates for semiconductor steppers, part of the company's core
business.

Silicon wafer-maker Sumco (3436.T) extended losses and has
plunged almost 18 percent in three days in heavy trade, after it
widened its annual net loss estimate, prompting ratings
downgrades from major brokerages.
(Additional reporting by Chikafumi Hodo; Editing by Edwina Gibbs)