Nikkei falls, set to snap 7-day winning streak

* Sharp in focus, to offer smartphone with Hon Hai
* Gree and DeNa up after Facebook surprises with mobile
revenue
* Investors see poor U.S. earnings as chance to take profit
* Exporters off after rally inspired by weaker yen

By Sophie Knight
TOKYO, Oct 24 (Reuters) - Japan's Nikkei share average fell
on Wednesday morning after poor U.S. earnings prompted investors
to take profits on export-oriented firms after a steep seven-day
rally, although better-than-expected Chinese data limited
losses.
Sharp Corp, however, bucked the downtrend after the
Nikkei business daily said it had started selling a smartphone
in China developed in tandem with Taiwanese company Hon Hai
Precision. Sharp's shares gained 4.5 percent and it
was the most-traded stock on the main board.
Japanese social gaming sites DeNa and Gree
also gained in heavy trade after Facebook Inc said mobile
advertising revenue had roughly tripled in the third quarter,
reassuring investors who had feared revenues of web-based firms
would be hit by the shift to smartphones from personal
computers.
DeNa added 3.3 percent while Gree advanced 4 percent.
But export-oriented firms weakened after a rally propelled
by a softer yen over the past week and a half, with Panasonic
Corp and construction machinery maker Komatsu Ltd
both slipping 1.5 percent.
"We can see this as a temporary, short-term adjustment,"
said Fumiyuki Nakanishi, manager of investment and research at
SMBC Friend Securities. "With the yen still soft and stocks at
highs after the rally, it's a very good moment for people to
take profits."
The Nikkei dipped 0.3 percent to 8,983.27 by the
midday break, but held above its 25-day moving average at
8,872.59 after seven straight days of gains to Tuesday, its
longest winning streak since July 2011.
The benchmark pared its early losses after data showed
Chinese output had reached a three-month high in October and
orders were their strongest since April, although growth
continued to shrink.
The China HSBC Flash Manufacturing Purchasing Managers Index
(PMI) hit 49.1, the highest level since July but below the
50-point level separating expansion from contraction.
"This is a surprisingly good result considering the
worsening of trade relations between China and Japan since
September," said Masayuki Otani, chief market analyst at
Securities Japan, referring to a territorial spat between the
two countries over disputed islands.
The broader Topix lost 0.5 percent to 745.94 in
moderate trade, with volume at 52.7 percent of its 90-day
average.

EARNINGS SEASON STARTS
A slew of big companies are due to report on profits on
Wednesday, including JFE Holdings Inc, Yahoo Japan Corp
, Nintendo Co Ltd and KDDI Corp.
KDDI gained 0.8 percent after the Nikkei business daily said
it was going to integrate its cable business with Sumitomo Corp
by late 2013, after acquiring current market leader
Jupiter Telecommunications.
Jupiter lost 2.8 percent as investors judged it overpriced,
as its 44 percent gain over the past two sessions had brought it
to more than the 110,000 yen that the Nikkei said KDDI and
Sumitomo would offer per share. Sumitomo also lost 0.3 pe r cent.
"Seeing as the market has now recovered after a sell-off on
doubts about earnings, it's possible that it could fall sharply
again as we start to see actual earnings come out and people
realise that it really is as bad as expected," Nakanishi of SMBC
Friend Securities said.On Wednesday morning, Kawasaki Heavy Industries Ltd
sagged 4.5 percent after the company almost halved its first
half operating profit forecast to 10.3 billion yen ($129
million), citing weaker-than-expected sales of precision
equipment and motorcycles due to a slowdown in China and Europe.
Canon Inc dropped 0.9 percent and Ricoh Co Ltd
lost 1.5 percent after U.S. rival Xerox Corp,
historically known for printers and copiers, reported
lower-than-expected third-quarter revenue and cut its full-year
earnings forecast.
But All Nippon Airways went against the trend by
gaining 1.3 percent after the Nikkei business daily said the
carrier was expected to post an operating profit of 70 billion
yen ($877 million) for the six months ended September, a 40
percent year-on-year increase, on strong overseas travel.