Nikkei dips as inflation fears outweigh dollar gains

(Updates with stocks, details)

By Elaine Lies

TOKYO, June 10 (Reuters) - Japan's Nikkei stock average edged down 0.1 percent on Tuesday as worries about inflation ate into property developers such as Mitsui Fudosan Co Ltd (8801.T) and outweighed the positive impact on exporters of a dollar that touched a three-month high against the yen. Softbank Corp (9984.T), Japan's third-biggest mobile phone operator, climbed 2.6 percent after saying it would start selling Apple Inc's (AAPL.O) new iPhone in Japan from July 11. [ID:nT268404] "Basically, today the market is in wait-and-see mode after the huge earthquake," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, referring to the nearly 400-point drop in the Dow last Friday. "Japanese stocks are relatively resilient, but with oil so high there's likely to be an impact on emerging markets and this will affect exports, which isn't good given the Japanese economy's dependence on exports."

U.S. crude CLc1 slid to settle at $134.35 during U.S. trade, but had edged up slightly by midday in Asia. Though "resilient" seemed to be the word of the day for Japanese market players describing the Nikkei, noting that it fell only 2 percent on Monday despite Wall Street's tumble, many were wary over the longer term.

"Though Tokyo is holding up relatively well, there's no question that worry about inflation is spreading, and this is making it hard to actively buy," said Takashi Ushio, at the investment strategy division of Marusan Securities. The benchmark Nikkei .N225 shed 8.29 points to 14,173.09, while the broader Topix was flat at 1,397.35. Both had initially climbed, boosted by exporters and buying across the board.

SUMMER RALLY?

Expectations of a summer rally have been dented by the high oil prices, inhibiting the Nikkei's rise, Daiwa SB's Ogawa said.

"To get fund flows shifting in favour of equities, we need a dollar rebound and lower oil prices. But with some people predicting oil heading for $150 a barrel, this is looking rather tough."

The dollar jumped to a three-month high against the yen JPY= in Tokyo after Federal Reserve Chairman Ben Bernanke said the recent rise in oil prices was adding to inflation risks, stoking expectations for interest rate hikes this year [ID:nNAT004117].

But worries about the impact of inflation in turn weighed on property developers, making the sector the biggest drag on the Nikkei 225, some market players said.

Mitsui Fudosan Co Ltd (8801.T), Japan's largest real estate developer, shed 2.5 percent to 2,380 yen. Mitsubishi Estate Co Ltd (8802.T) fell 1.1 percent to 2,600 yen and Sumitomo Realty & Development Co Ltd (8830.T) gave up 2.9 percent to 2,370 yen.

Tokyo Land (8815.T) slid 2.9 percent to 663 yen.

Bank shares, initially positive, edged into negative territory after financials were beaten lower in New York on increased expectations for interest rates to rise and a forecast by Lehman Brothers LEH.N of a $2.8 billion second-quarter loss. [ID:nN09455556]

Mitsubishi UFJ Financial Group (8306.T), Japan's top lender, fell 0.3 percent to 1,083 yen and Mizuho Financial Group (8411.T) slipped 0.4 percent to 558,000 yen. Sumitomo Mitsui Financial Group (8316.T) edged down 0.4 percent.

Trade was thin on the Tokyo exchange's first section, with 874 million shares changing hands, compared with last week's morning average of 1.1 billion.

Advancing stocks beat decliners by 856 to 712.

(Editing by Brent Kininmont)