Nikkei falls before US jobs data, but Hitachi gains

* Investors cautious ahead of U.S. data

* Upbeat mood intact, but market pauses after rally

* Hitachi jumps on report of lithium ion batteries

By Aiko Hayashi

TOKYO, July 2 (Reuters) - Japan's Nikkei average fell 0.6 percent on Thursday, dented by a fall in blue-chip shares as caution set in ahead of U.S. jobs data, but Hitachi (6501.T) jumped on a report it will boost production of lithium ion batteries for hybrid cars.

Market analysts said the Nikkei was due for a pause after recovering some 40 percent from its March lows, though the mood remained upbeat, reinforced by reassuring manufacturing data from Europe, China and the United States.

"The market is at a standstill right now after overshooting recently and as it's just under 10,000. It will likely spend July and August -- the summer months when trade is thin -- consolidating around the 10,000 level," said Fumiyuki Nakanishi, manager at SMBC Friend Securities.

The benchmark Nikkei .N225 closed down 63.78 points at 9,876.15. On Wednesday, it briefly touched its highest in about two weeks above 10,000 before ending the day slightly lower.

The broader Topix slipped 0.5 percent to 924.02.

"The overly optimistic view on the economy has been modified and that is prompting investors to adjust positions in blue-chip stocks. For further gains, the market needs to see more improvement in the fundamentals of the economy," said Takahiko Murai, general manager of equities at Nozomi Securities.

"Still, environment-related stocks such as battery makers are faring pretty well as they are the flavour of the month."

The U.S. employment report, due on Thursday as U.S. markets will be shut on Friday for the Independence Day holiday, is expected to depict an economy still wallowing in recession but it will likely confirm the pace of job losses has slowed. [ID:nN01511504]

The Dow Jones industrial average .DJI rose 0.7 percent on Wednesday. Surveys from Europe showed manufacturing was shrinking less than initially thought and in China's case, growing modestly, while other data showed the U.S. manufacturing sector contracted in June but at a slower pace than in May. [ID:nPEK138883] [ID:nN01366244]

BLUE-CHIPS WEIGH

Canon Inc (7751.T) shed 1.9 percent to 3,070 yen and electronics parts maker TDK Corp (6762.T) fell 1.6 percent to 4,460 yen. Honda Motor Co (7267.T) slid 2.3 percent to 2,585 yen, the top drag on the Nikkei 225.

But Hitachi climbed 3 percent to 307 yen after the Nikkei business daily reported the company plans to boost production capacity for lithium ion batteries for hybrid cars, targeting a 70-fold increase by 2015. [ID:nBNG508790]