Nikkei flat, pressured by banks and property

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By Elaine Lies

TOKYO, June 11 (Reuters) - Japan's Nikkei stock average was flat on Wednesday after giving up early gains, weighed down by banks such as Mizuho Financial Group (8411.T) after megabanks were downgraded, and property firms sliding on growing worries about the sector. Mitsubishi Corp (8058.T) and other trading firms fell after oil dropped sharply on Tuesday, with energy-linked shares also taking a hit. Oil and gas field developer Inpex Holdings Inc (1605.T) lost 3 percent. Additional downward pressure came from dips in other Asian markets, with Shanghai .SSEC slipping 1.5 percent.

"Japanese stocks had been holding their own pretty well in comparison to other markets around the world, but now investors are moving to lock in profits," said Hiroaki Osakabe, fund manager at Chibagin Asset Management.

"There's just less demand for stocks globally."

The dollar was trading at around 107.35 yen after rising to its highest in three and a half months against the Japanese currency on Tuesday after Federal Reserve Chairman Ben Bernanke boosted expectations of higher interest rates.

This, and unexpectedly strong growth in Japan's economy for the first three months of this year, gave stocks an initial boost soon after the opening, but the early strength faded once broader Asian trade began.

The benchmark Nikkei .N225 gained 5.17 points after a brief dip into negative territory, ending up 0.04 percent at 14,026.34. The broader Topix was down 0.4 percent at 1,377.51.

"Japan isn't really affected by inflation as much as other countries yet, but here too prices are rising and the economy is sluggish, with concerns about this limiting share rises," said Yutaka Miura, a senior technical analyst at Shinko Securities, noting that general uncertainty was also dampening buying.

But the Nikkei was still outperforming the rest of Asia, with the MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS down 0.6 percent.

BANKS, PROPERTY SHUNNED

Japan's three biggest banks slipped after Credit Suisse cut its ratings on the stocks to "neutral" from "outperform", saying they look less undervalued given their current share prices and a tough business environment. [ID:nT283214]

Top lender Mitsubishi UFJ Financial Group (8306.T) fell 1.3 percent to 1,052 yen, No.2 Mizuho Financial Group (8411.T) shed 1.6 percent to 544,000 yen and Sumitomo Mitsui Financial Group (8316.T), the third-biggest bank, dipped 1.1 percent to 881,000 yen.

Credit Suisse analyst Shinichi Ina wrote in a note to clients on Tuesday that further potential gains look unlikely.

"Demand for funds and sales of financial products remain sluggish in Japan, while we also expect credit costs to rise given the deteriorating business environment for SMEs (small- to mid-size enterprises) that are facing inflationary risk," he wrote.

Property firms slid for the second straight day, with investor appetite dampened by media reports of rising land prices and an increase in the number of vacant offices, said Chibagin Asset Management's Osakabe.

Mitsui Fudosan Co Ltd (8801.T), Japan's largest real estate developer, lost 3.2 percent to 2,305 yen. Mitsubishi Estate Co Ltd (8802.T) slipped 2.3 percent to 2,525 yen and Tokyu Land (8815.T) slid 3.5 percent to 630 yen.

Oil fell $3 overnight on demand concerns and a dollar rebound, pummelling trading houses, though U.S. crude CLc1 had risen slightly in Asian trade. Mitsubishi Corp lost 2.5 percent to 3,450 yen, Mitsui & Co (8031.T) fell 2.1 percent to 2,360 yen and Marubeni Corp (8002.T) was down 2.2 percent at 901 yen.

Trade was moderate on the Tokyo exchange's first section, with 913 million shares changing hands, compared with last week's morning average of 1.1 billion.

Declining stocks beat advancers by more than 2 to 1.

(Editing by Brent Kininmont)