Nikkei down after hitting 8-mth high, data eyed

* Nikkei climbs above 10,000 to hit 8-month high

* Steel shares strong on ratings hike

* But worry about U.S. interest rates, data weighs

* Nikkei now above 52-week moving average, more rises slow

By Elaine Lies

TOKYO, June 11 (Reuters) - Japan's Nikkei stock average edged above 10,000 to an eight-month high on Thursday before retreating 0.3 percent, with worries about rising U.S. interest rates offsetting gains by steel shares on a brokerage upgrade.

Nippon Steel Corp (5401.T) surged more than 5 percent after Morgan Stanley lifted its rating on the sector to "attractive" from "in-line," saying it was time to shift to an aggressive investment stance as uncertainties surrounding the sector have started to resolve.

But market analysts said gains were likely to be limited on worries that rising U.S. interest rates could put a damper on consumer and business spending after a 10-year Treasury note auction on Wednesday sparked a sell-off in bonds and sent Wall Street lower. [.N]

"The Nikkei is likely to take a bit of a breather now as investors wait to see what happens with U.S. retail sales and an auction of 30-year debt later on Thursday," said Yumi Nishimura, deputy general manager at Daiwa Securities SMBC.

The benchmark Nikkei .N225 rose as far as 10,022.23 in active trade, its highest since October 7 and a rise of roughly 43 percent from its March bear market low. As of Wednesday's close, the Dow Jones industrial average .DJI had risen some 35 percent and the S&P 500 .SPX some 41 percent from their March lows.

Data showed Japan's economy contracted a revised 3.8 percent in the first three months of this year, better than economists' median forecast for a 4.0 percent contraction, which was the same as the initial estimate, though stocks mostly shrugged this off.

"The economy's definitely bottomed out and so there's buying interest on this, but we still need more proof of real recovery both at home and overseas to take the Nikkei much higher," said Yutaka Miura, chief technical analyst at Mizuho Securities.

The Nikkei this week climbed above its 52-week moving average, which now comes in around 9,800, but analysts say it needs to break above 10,500 to enter a bull market.

The 10,500-10,800 range has provided strong support and resistance in the past, most notably in late 2003 to 2004, and is also significant because 10,800 is a 50 percent retracement from last year's closing high of 14,489 to the March closing trough of 7,054. "Moving above 10,000 will provide a sense of achievement, but for it to be really significant we need to close above 10,000 too," said Hirokazu Fujiki, a technical analyst at Okasan Securities, noting that the Nikkei will likely consolidate just above 10,000 for a while before moving higher.

STEEL SOLID, EXPORTERS EDGY

Steel held onto gains made on the Morgan Stanley sector upgrade, with the iron and steel subindex .ISTEL.T up 3.1 percent to become the biggest gainer among the subindexes.

Morgan Stanley also raised its rating on Nippon Steel to "overweight" from "equal-weight" and raised the company's target price to 480 yen from 270 yen.

Nippon Steel gained 5.1 percent to 391 yen, while JFE Holdings Inc (5411.T) shot up 4 percent to 3,360 yen and Kobe Steel Ltd (5406.T) advanced 2.7 percent to 189 yen.

Olympus Corp (7733.T) jumped 10.1 percent to 2,300 yen after Deutsche Securities doubled its target price for the maker of digital cameras and medical devices to 3,230 yen on cost cuts and brisk sales of endoscopes.

But selling among a broad swathe of shares, including index heavyweights such as Honda Motor Corp (7267.T) and other exporters, dragged the Nikkei lower as profit-taking emerged after recent gains and amid worries about U.S. interest rates.

Honda lost 1.7 percent to 2,835 yen, TDK Corp (6762.T) fell 1.8 percent to 4,360 yen, and Sony Corp (6758.T) lost 0.9 percent to 2,675 yen.

Trade picked up on the Tokyo exchange's first section, with 1.6 billion shares changing hands, above last week's morning average of 1.2 billion.

Declining stocks outnumbered advancing ones, 867 to 671. (Editing by Edwina Gibbs)