Nikkei retreats 1.6 pct, Daiichi Sankyo slides

* Nikkei succumbs to selling after 5 days of gains

* Banking shares lose steam after sharp rally

* Daiichi Sankyo tumbles, books large annual net loss

By Shinichi Saoshiro

TOKYO, May 12 (Reuters) - Japan's Nikkei average lost 1.6 percent on Tuesday, succumbing to profit-taking after hitting a six-month closing high the previous day, with drugmaker Daiichi Sankyo (4568.T) sliding 9.3 percent after a large annual net loss.

Bank shares such as Mitsubishi UFJ Financial Group (8306.T) retraced some of their earlier sharp gains fuelled by optimism about the U.S. banking system after U.S. financials slid the previous day on news of several banks' share offerings. [.N]

"Investors are becoming a little nervous after several days of steady gains. Their appetite for risk was dulled slightly after U.S. banks did an about-face yesterday and fell as some gear up to raise more capital," said Shoji Yoshigoe, a senior investment strategist at Mitsubishi UFJ Securities.

"The selling in the market is still mostly limited to profit-taking," Yoshigoe said.

The benchmark Nikkei .N225 shed 153.37 points to 9,298.61. It rose 0.2 percent on Monday to its highest close since Nov. 5.

Tuesday's fall comes after the Nikkei rose more than 11 percent during five consecutive days of gains.

The broader Topix retreated 1.7 percent to 885.43.

DAIICHI SANKYO TUMBLES, BANKS FALL

Closely watched corporate earnings releases continued on Tuesday, with Daiichi Sankyo losing 9.3 percent to 1,653 yen after booking a large annual net loss on its stake in India's generic drugmaker Ranbaxy Laboratories (RANB.BO). [ID:nT64620]

It forecast a net profit of 40 billion yen ($410 million) for this financial year, short of a consensus forecast of 74.2 billion yen in a poll of 14 analysts by Thomson Reuters.

Daiichi Sankyo was one of the top drags on the Nikkei 225 on Tuesday.

Dentsu Inc (4324.T), Japan's biggest advertising agency, fell 7.5 percent to 1,803 yen after reporting a fourth-quarter loss of 24.6 billion yen and forecasting a weaker recovery than expected this year. [ID:nT59670]