Nikkei dips 0.2 percent on economy worry,

By Shinichi Saoshiro

TOKYO (Reuters) - Japan's Nikkei average dipped 0.2 percent on Tuesday, giving back earlier gains on persisting concerns about an economic recovery, with exporters dragged lower by worries over a strengthening yen.

Oil and gas developer Inpex Corp (1605.T) shed 1.3 percent after oil prices lost 4 percent on Monday on doubts over a potential rebound in the global economy.

"Optimism previously shown toward the economy is being scaled back and this is putting a lid on the market. Last week's U.S. employment numbers were a hint that perhaps the market had become overoptimistic," said Takahiko Murai, general manager of equities at Nozomi Securities.

Data on Thursday showed employers in the United States shed nearly half a million jobs in June with the unemployment rate jumping to 9.5 percent, the highest in nearly 26 years.

The benchmark Nikkei .N225 was down 20.94 points at 9,659.93 at the midday break. It initially rose 0.6 percent following gains on Wall Street the previous day.

The Nikkei was on track to remain below its 25-day moving average, around 9,800, for a third straight day.

The index has lost momentum after reaching an eight-month high of 10,170.82 last month.

"The market wants to gauge economic indicators and corporate results as recent gains appeared to have outpaced actual economic conditions," said Hiroichi Nishi, general manager of equity marketing at Nikko Cordial Securities.

Investors will be eyeing upcoming U.S. corporate earnings including bellwethers Alcoa (AA.N) and Chevron (CVX.N).

The broader Topix shed 0.2 percent to 910.22.

DEFENSIVES LIMIT LOSSES

Exporters slid after the dollar hit a five-week low below 95 yen the previous day. Canon Inc (7751.T) fell 1 percent to 3,050 yen and electronics parts maker TDK Corp (6762.T) lost 1.6 percent to 4,280 yen. Honda Motor Co (7267.T) shed 1.6 percent to 2,540 yen.

Resource-linked shares were also hurt by clouded prospects of a global economic recovery. Non-ferrous metals smelters Nippon Light Metal (5701.T) fell 4 percent to 97 yen and Mitsui Mining and Smelting (5706.T) dropped 1.7 percent to 230 yen.

The non-ferrous metals subindex .INFRO.T fell 2.4 percent, posting the biggest drop among the subindexes.

Market players said the Nikkei's downside was limited by investors shifting funds into defensive stocks such as drugmakers, considered resilient amid unfavorable economic conditions.