Nikkei falls over 1 pct after S&P Europe warning

* Europe downgrade warning heightens contagion fears
* Toyota down on profit-taking, revised forecast due Friday
* Olympus surges ahead of independent panel report

By Lisa Twaronite
TOKYO, Dec 6 (Reuters) - The Nikkei share average
slipped on Tuesday, breaking a three-day rally, after a warning
from Standard & Poor's raised fears of possible sovereign credit
downgrades of top-rated European nations.
Shares in Olympus Corp soared as much as 15 percent
as investors bet that a panel report into its scandal-ridden
accounts would not turn up any nasty new surprises which could
lead to the stock being delisted from the Tokyo bourse. After
the close, the panel said it found no evidence of involvement by
organised crime.
S&P placed 15 euro zone countries, including economic
powerhouses Germany and France, on credit watch negative on
Monday, an unprecedented step that signals a possible downgrade
within three months. A downgrade would in turn heighten concerns
about debt crisis contagion, and its impact on global growth.
The S&P decision came after the U.S. market close, just
hours after French and German leaders agreed on the need for a
basic treaty change in the currency bloc to place strict budget
restrictions on governments.
"We will be watching the reaction of European stocks to the
S&P move, which hit Asian markets today," said Norihiro Fujito,
senior investment strategist at Mitsubishi UFJ Morgan Stanley.
"Downgrades would be bad news not just for Europe, but
clearly for the rest of the world as well," he added.
The benchmark Nikkei dropped 1.4 percent to
8,575.16. But it remained comfortably above its 25-day moving
average, now around 8,545.
The broader Topix index shed 1.4 percent to end at
its session low of 738.01. Nearly ten issues declined for each
that advanced.
Volume was relatively thin, with 1.59 billion shares
changing hands, compared to last week's average full-day volume
of 1.65 billion shares.
European Union leaders are meeting on Thursday and Friday,
seen as a make-or-break moment for the zone as they seek
agreement on a convincing rescue plan. The European Central Bank
is expected to cut interest rates at its meeting on Thursday.
"We are entering a critical stage," said Kenichi Hirano,
operating officer at Tachibana Securities.
"There are high market expectations for positive
developments out of the European leaders' meeting this week and
if there are any indications that decisions will be pushed back
it will have negative consequences for the market," he said.
Even if macroeconomic hurdles can be overcome, the Nikkei
faces heavy technical resistance at 8,700 as long as trading
volumes remain thin.
Above that hovers the bottom of the Ichimoku cloud around
8,746, which is another key resistance point where selling could
accelerate, said Yutaka Miura, senior technical analyst at
Mizuho Securities.

OLYMPUS PANEL
Olympus shares jumped 9.1 percent to 1,190 yen after earlier
rising as much as 15 percent. The issue was the heaviest traded
share by turnover.
The firm has lost more than half its value since ousted CEO
Michael Woodford went public with his concerns over its
questionable acquisitions. The panel recommended other directors
involved in the loss-hiding scheme should be replaced.

Toyota Motor Corp shed 2.1 percent to 2,606 yen,
underperforming rivals after the automaker said it would
announce its revised earnings forecast on Friday for the
financial year to March, 2012, delayed due to the floods in
Thailand.
While some participants took Toyota's planned release as a
positive sign, others were more uncertain and took profits after
the stock closed at a five-week high on Monday.
Nissan Motor fell 1.6 percent, while Honda Motor Co
edged up 0.1 percent.
Shares of Meiji Holdings Co plunged 9.7 percent to
3,020 yen, marking a two-year low, after the Kyodo news agency
reported that traces of radioactive cesium were found in the
company's powdered milk. It was the third-biggest loser on the
main board.