* Japanese equities' valuation no longer attractive - analyst * Nikkei finds support at 9,400 - analyst * Sharp up more than 2 pct on Qualcomm deal * Paper companies drop on Merrill rating cuts By Ayai Tomisawa TOKYO, Dec 4 Japan's Nikkei share average edged down on Tuesday, trimming gains from a seven-month closing high in the previous session as weak U.S. economic data triggered profit-taking on exporters. By the midday break, the Nikkei was down 0.4 percent at 9,420.26, moving further away from Monday's peak when it pierced the psychologically important 9,500 resistance line for the first time since April 27. Analysts said investors were wary of uncertainty over the U.S. economy, which is key to the fortunes of Japan's exporters, many of which rely on consumption in the world's biggest economy. Manufacturing activity in the United States surprisingly contracted in November, hitting its lowest level in more than three years, while there has been no resolution to the country's so-called fiscal cliff. Canon Inc dropped 1.4 percent, Nikon Corp shed 2.9 percent and Nissan Motor Co fell 3.4 percent. "Investors are cautious about the market's sharp rise in the past few weeks, and as soon as the Nikkei hit the 9,500-mark, trading has slowed down. Investors started taking a wait-and-see mode," said Hiroichi Nishi, general manager at SMBC Nikko Securities. The Nikkei should find support at 9,400 for Tuesday, he said. During the past 2-1/2 weeks, the benchmark has rallied 9.2 percent, led by exporters, as the yen has fallen on speculation the Bank of Japan will be pushed to adopt aggressive policy action after the Dec. 16 election. A weaker yen lifts the value of exporters' overseas incomes when repatriated. The leader of the main opposition Liberal Democratic Party, Shinzo Abe, has been calling on the Bank of Japan to take bolder action, including setting a 2 percent inflation target and embarking on "unlimited easing". The LDP is expected to win the most seats and form the government after the election. "Such positive news for the currency has been priced into the current market," said Kenichi Hirano, a strategist at Tachibana Securities. "Foreign investors will likely hold exporters at least until the election." The currency last traded at 82.06 yen to the dollar, down from its 7-1/2-month low of 82.84 touched on Nov. 22 but still above the 82 yen threshold. A fall below this level could trigger selling in the equities market, analysts have said. Hirano also said that the recent rise in the Japanese market has made it less of a bargain buy compared with global counterparts. Japanese equities are slightly more expensive than their European counterparts, with a 12-month forward price-to-earning ratio of 14.9 versus STOXX Europe 600's 12.2, data from Thomson Reuters Datastream showed. The S&P 500 carries a 12-month forward P/E of 13.8. "Japanese shares are not attractive in terms of valuation. Unless the yen weakens sharply from the current level, foreign investors may not add more exporters for now," Hirano said. Bucking overall market weakness, struggling display panel maker Sharp Corp gained as much as 2.9 percent to 177 yen in early trade after two sources familiar with the matter said it and U.S. chipmaker Qualcomm Inc have agreed to jointly develop next-generation displays. Paper makers lost ground, with Hokuetsu Kishu Paper Co , Oji Holdings Corp and Nippon Paper Group Inc falling between 2.7-4.3 percent after Bank Of America Merrill Lynch cut their ratings. The broader Topix was down 0.2 percent at 780.38.