* Nikkei drops 0.3 pct, renewed yen strength hurts
* Daikin slides on report it wants to buy Goodman
* Advantest up 3.7 pct on news of buyout offer for Verigy
* China rate rise concerns weigh early but later shrugged off
By Antoni Slodkowski and Chikafumi Hodo
TOKYO, Dec 7 (Reuters) - Japan's Nikkei average ended 0.3
percent lower on Tuesday as renewed yen strength encouraged
profit-taking but market players said underlying sentiment that
took the benchmark to six-month highs last week remained bullish.
M&A news saw airconditioner maker Daikin 6367.T slide
almost 4 percent after Bloomberg news said it was in talks to buy
U.S. rival Goodman Global Group in a deal that could be worth
more than $3.6 billion. [ID:nTOE6B6037]
But chip equipment maker Advantest 6857.T jumped 3.7
percent after it made a $729 million buyout offer for U.S. rival
Verigy Ltd VRGY.O. [ID:nSGE6B509V]
The Japanese currency has more risen than one yen to 82.62
yen per dollar JPY= since disappointing U.S. jobs data last
week and a suggestion from the Federal Reserve that it could
expand its bond buying if needed to help the economy.
The euro, weighed down by concerns about euro zone debt, has
also eased against the yen.
"The yen's firmness is putting pressure on the Nikkei.
Precision machinery shares are especially under pressure due to
the yen's strength on the euro," said Hiroaki Kuramochi, chief
equity marketing officer at Tokai Tokyo Securities.
"So far we are not overly worried about the yen's recent
recovery, but we'll be more concerned should the yen approach 80
(against the dollar)," said Kuramochi.
The Nikkei .N225 closed the day down 26.13 points at
10,141.10 in light trade, but remains not too far from a
six-month high of 10,254.00 hit last week.
The broader Topix index .TOPX also shed 0.3 percent to
The official China Securities Journal reported that China's
central bank may tighten credit which weighed on Chinese shares
and in turn Tokyo equities in early trade.
But both markets later appeared to have shrugged off those
concerns in a sign that investors were getting used to the idea
that China may raise rates.
"Traders in Tokyo looked at China and thought that if those
markets aren't that worried, then we don't need to worry either,"
said Shoji Yoshigoe, senior investment strategist at Mitsubishi
UFJ Morgan Stanley Securities Co. Ltd.
Investors were also hesitant about taking large positions in
the Nikkei ahead of the closely watched settlement of futures and
options prices on Friday.
The settlement, known in Japan as the special quotation or
"SQ", is calculated from the opening prices of the 225 shares on
the Nikkei average on the second Friday of the month.
Many investors appeared to have finished rolling over their
positions to the March contract, a Tokyo-based options trader
said, adding that he expects contracts expiring in December will
settle around 10,050-10,300.
Some 1.7 billion shares changed hands on the Tokyo exchange's
first section, up from 1.48 billion hit on Monday when it was at
its lowest for over a month, but below last week's daily average
of 1.81 billion.
Advancing issues outnumbered declining ones by almost 2 to 1.
"The underlying sentiment is still bullish, but volume is
likely to stay low unless we see a clear break above 10,300 or
10,400 levels," said Yoshigoe, adding that more retail investors
would join the market above those levels.
Daikin fell 3.8 percent to 2,993 yen, reflecting investors
concerns that the company may issue shares to finance such a
Advantest, which counts Intel Corp INTC.O as a customer for
its memory testing equipment, climbed to 1,866 yen, with Nomura
Securities analyst Tetsuya Wadaki saying that it was a sensible
move given the lack of growth opportunities in the tester market
and Advantest's ability to fund such a deal.
The rising yen has helped reignite a push by Japanese
companies to snap up overseas assets and secure growth outside
their sluggish domestic market. Outbound M&A doubled in the first
nine months of 2010 to a total $31.5 billion.
(Editing by Edwina Gibbs)