Nikkei flat as yen rise offsets machinery orders

* Nikkei pressured as yen rises against dollar, trade thin

* Machinery orders "positive surprise" but little impact * Sources say state bank will give JAL $1.1 bln credit line

* Nikkei, Topix both end flat

By Elaine Lies

TOKYO, Nov 11 (Reuters) - Japan's Nikkei stock average was flat on Wednesday as the yen climbed, offsetting a surprisingly large jump in domestic machinery orders for September and a forecast for a rise in the fourth quarter.

Tech shares such as Advantest Corp (6857.T) slipped after rising the previous day, while nonferrous metals makers such as Dowa Holdings (5714.T) came under pressure amid concerns over long-term demand. But Japan Airlines Corp (9205.T) rose 4.8 percent after sources said the state-owned Development Bank of Japan will offer a 100 billion yen ($1.1 billion) line of credit to JAL to keep the airline from running out of cash. [ID:nBNG509104]

The dollar lost 0.1 percent to 89.67 yen and analysts said the stronger yen was providing some immediate pressure, although they noted the bigger problem was demand.

"In light of the uptrend in overseas markets, the Japanese market is unlikely to rapidly decline, but it will be difficult to buy Japanese stocks due to growing risks in Japan, namely political and fiscal policy risks," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

The benchmark Nikkei .N225 was flat at 9,871.68, up 0.95 point, while the broader Topix index was also flat, down 0.15 point at 872.29.

Core machinery orders, a highly volatile series regarded as an indicator of capital spending, surged 10.5 percent in September and manufacturers forecast a rise of 1.0 percent in October-December, the first quarterly increase in seven quarters. [JPMORD=ECI]

Though some machinery makers rose, gains were limited and analysts remained wary.

"Japanese investors basically lack confidence. There's worry about financing issues, and the market's lacking catalysts now that the earnings season is mostly over," said Koichi Ogawa, chief fund manager at Daiwa SB Investment.

"Longer-term, there's the whole issue of the Japanese budget deficit."

The yield curve for government bonds has steepened over the past month on renewed concerns about possible increases in debt issuance later this fiscal year and worries about the size of JGB issuance in fiscal 2010/2011. [ID:nT280557]

MACHINES UP, METALS DOWN

Buoyed by the machinery orders, Sumitomo Heavy Industries (6302.T) rose 3.6 percent to 431 yen and Daikin Industries (6367.T) climbed 2.5 percent to 3,250 yen. Industrial robot maker Fanuc (6954.T) edged up 0.3 percent to 7,640 yen.

Bank shares gained as well with top bank Mitsubishi UFJ Financial Group (8306.T) up 1.4 percent to 510 yen and no. 3 bank Sumitomo Mitsui Financial Group (8316.T) rising 1 percent to 3,200 yen.

Sentiment for bank and financial shares improved following comments by Japan's banking minister on Tuesday suggesting the government might may not strictly enforce capital requirements for banks, though many analysts said this had been used as an excuse for short-covering.

"But I doubt that bank shares will rise continuously as concerns about capital raising linger," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

Dowa Holdings and Pacific Metals (5541.T), both nonferrous metals makers, were the top drags on the Nikkei, with Dowa Holdings falling 6 percent to 503 yen and Pacific Metals losing 5.5 percent to 641 yen.

"Medium- and long-term players are selling nonferrous shares as they are uncertain about long-term prospects for the sector. They are not clear whether the current uptrend in raw material prices will continue," Okamoto said.

Aeon Co Ltd (8267.T), Japan's second-largest retailer, fell 5 percent to 736 yen after saying it would raise 100 billion yen ($1.11 billion) through a convertible bond issue to service debt payments, triggering worries over a dilution in share value.

Advantest lost 1.7 percent to 1,975 yen and Tokyo Electron (8035.T) fell 2 percent to 4,880 yen.

Trade was thin, with 1.7 billion shares changing hands on the Tokyo exchange's first section compared with last week's daily average of 1.8 billion.

Declining shares outnumbered advancing ones by over 2 to 1. (Additional reporting by Chikafumi Hodo; Editing by Edwina Gibbs)