Nikkei flat as profit-taking follows rally

(Updates to midmorning)

TOKYO, Oct 3 (Reuters) - Japan's Nikkei average remained virtually flat on Wednesday, as investors locked in profits after the index climbed above the key 17,000 level for the first time in eight weeks in the previous session.

Nikko Cordial Corp 8603.T was untraded as it was flooded with buy orders after Citigroup (C.N: Quote, Profile, Research, Stock Buzz) said it would buy out minority shareholders in the Japanese brokerage by giving Citigroup shares with an expected value of 1,700 yen per Nikko Cordial share, a 16 percent premium to Tuesday's closing price.

"There is profit-taking at 17,000. But at the same time, selling is likely to be limited because investors are also aware of selling risks in an upward trend in global markets," said Kenichi Hirano, operating officer at Tachibana Securities.

Companies with strong fundamentals such as digital camera and precision instrument maker Nikon Corp (7731.T: Quote, Profile, Research, Stock Buzz) were gaining even in the face of profit-taking, he said. Nikon rose 3.0 percent to 4,170 yen, an intraday high since May 2000.

As of 0116 GMT, the benchmark Nikkei .N225 was down 12.49 points, or 0.07 percent, at 17,045.93. The broader TOPIX index was up 0.3 percent at 1,644.77.

Fast Retailing Co Ltd (9983.T: Quote, Profile, Research, Stock Buzz) fell 4 percent to 6,510 yen after it said same-store sales at its Uniqlo chain of casual-clothing stores posted their sharpest drop in 20 months in September.

Security brokerages were up. Nomura Holdings Inc (8604.T: Quote, Profile, Research, Stock Buzz) climbed 3.7 percent to 2,085 yen and Daiwa Securities Group Inc (8601.T: Quote, Profile, Research, Stock Buzz) gained 4.8 percent to 1,166 yen on speculation that index funds may buy more of these shares after rival Nikko Cordial is delisted following Citigroup's buyout.

"Citigroup's buyout is also seen as positive for Japan's securities industry, as the foreign ownership of one of the major houses may stimulate the industry," Tachibana's Hirano said.

IHI (7013.T: Quote, Profile, Research, Stock Buzz) rebounded, up 7.6 percent to 284 yen after losing 27 percent in the previous two sessions following a shock loss warning.