Nikkei slips 1.3 percent as fear and optimism war

* Nikkei slips 1.3 percent

* Investors torn between optimism over Fed, fear over economy

* Exporters pare losses as yen pulls back, but still down

* Defensive shares provide support, but some are sold (Adds stocks, details)

By Elaine Lies

TOKYO, Nov 26 (Reuters) - Japan's Nikkei average fell 1.3 percent on Wednesday as a weaker yen helped exporters such as Canon Inc (7751.T) cut losses and optimism over a U.S. Federal Reserve bailout warred with fears over the global economy. Panasonic Corp (6752.T) shed well over 3 percent after Goldman Sachs said it had broken off talks for now on the possible sale of Goldman's shares in Sanyo Electric Co Ltd (6764.T), while car makers fell after more poor U.S. data underlined its bad economy.

Still, not all the news was bad. Elpida Memory, battered by heavy selling in recent weeks, soared 22.7 percent to rise by its daily limit after the Nikkei business daily reported the chipmaker has developed the world's smallest dynamic random access memory (DRAM) chip. Though the market welcomed the Federal Reserve's massive new programme to aid the beleaguered American consumer, a programme that helped the Dow and S&P 500 extend gains on Tuesday, many players noted that numerous problems remain and have yet to be adequately dealt with.

"The Fed appears to have moved quickly, but how soon will this policy actually have an impact? In a way, its scale underlines how serious the situation is," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

"The problems of GM and Ford still remain, so there's still a lot of uncertainty."

The Fed said it will buy up to $100 billion of debt issued by government-sponsored mortgage enterprises Fannie Mae (FNM.P), Freddie Mac (FRE.P) and the Federal Home Loan banks. It will also purchase up to $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. [ID:nN25261467]

The central bank also teamed up with the Treasury Department to launch a $200 billion facility to support consumer finance.

In very thin trade, the benchmark Nikkei .N225 had shed 110.71 points to 8,213.22, while the broader Topix was down 1.7 percent to 817.22 as investors grappled with the meaning and potential of the recent U.S. moves.

"As far as the U.S. financial sector goes, it seems as if the worst is over, and (President-elect Barack) Obama is moving very energetically on the economy," said Takahiko Murai, general manager of equities at Nozomi Securites. "But there is also a sense it may already be too late." WARY EYE ON YEN Investors were carefully watching the moves of the yen, which was edging up against both the dollar and the euro although it was off earlier highs JPY= EURJPY=R.

"The market has gained some confidence after the Fed put that much money into its bailout, the only thing I'm really worried about right now is currencies," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.

Exporters were hit by a report showing the U.S. economy shrank at a faster rate in the third quarter than was originally estimated, while the fall in U.S. house prices accelerated. [ID:nN25493180]

Toyota Motor Corp (7203.T) was nailed by the stronger yen, the poor U.S. economic outlook, and its first ratings cut in a decade by a major ratings agency to become the fourth-largest drag on the Nikkei 225 by volume weight.