Japanese stocks close down after PM resignation

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By Elaine Lies

TOKYO, Sept 12 (Reuters) - Japanese stocks ended in negative territory on Wednesday after the shock resignation of Prime Minister Shinzo Abe, with the Nikkei average down 0.5 percent as thin trade and political uncertainty took their toll.

Abe said on Wednesday he was stepping down because there would be a better chance of continuing Japan's support for U.S. military operations in Afghanistan under a new leader.

The afternoon's see-saw trade, which saw the Nikkei touch both its high and low for the day as the news about Abe emerged, reflected the mixed nature of the news, traders said.

"Abe has lost binding political energy, and with rumours in the market that a snap election might be near, a lot of negative factors have been eliminated," said Hiroyuki Fukunaga, chief strategist in the research division at Rakuten Securities.

"But until the next prime minister is named, political uncertainty will weigh on the market."

Abe is expected to stay on in a caretaker role until a new prime minister is chosen. Taro Aso, a close Abe ally who is secretary-general of Abe's ruling Liberal Democratic Party, is generally seen as a front runner.

Traders said the impact of Abe's resignation was likely to be limited, with the market relieved that the threat of political gridlock was removed but a bit wary of buying until the overall situation becomes somewhat more clear.

"There was concern about what might happen in parliament under Abe, whether he could get policies enacted," said Yumi Nishimura, manager at the investment advisory section of Daiwa Securities SMBC.

"But because we can't see who the new prime minister will be, it's hard to read the situation clearly."

Some believe that once the dust settles, the way will be cleared for funds -- especially from foreign investors, who have been driving market moves recently -- to start returning to the market.

"Having the unpopular Abe leave is a relief to the market, but this will not have as much of an impact as if a person directly connected with economic policy were to quit, like the Bank of Japan head," said Takahiko Murai, general manager of equities at Nozomi Securities.

"If Aso takes over, that will mainly be in line with expectations, minimising the impact."

The Nikkei average .N225 ended down by 80.07 points at 15,797.60, while the broader TOPIX index was down 0.27 percent at 1,528.27.

Trade was thin with 1.7 billion shares changed hands, compared with a daily average volume of 2.3 billion shares in August. Decliners beat advancers by 965 to 639.