Japanese shares give up early gains as investors book profits

TOKYO, Sept 27 (Reuters) - Japanese shares settled slightly lower on Monday, giving up early gains driven by cyclical stocks as investors booked profits after a sharp rally this month, while caution also prevailed ahead of a change in political leadership.

The Nikkei share average closed down 0.03% at 30,240.06 after rising as much as 0.5%. The broader Topix slipped 0.14% to 2,087.74.

The Nikkei has risen almost 8% this month on hopes of an economic recovery amid declining cases of COVID-19 infections.

“Early gains were erased as investors tried to lock in profits after a big rally until last week,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

“The sell-off was driven by caution ahead of a change in political leadership, while there are still fears of possible default by China Evergrande.”

Japan’s ruling Liberal Democratic Party is set to hold an election to choose a new leader, who is set to become the country’s next prime minister.

Stocks with an exposure to China continued to be hit as fears of a potential default at China Evergrande loomed. Air-conditioner maker Daikin Industries fell 3.44% and toilet maker Toto slipped 1.84%.

Shippers led the decline among the Tokyo Stock Exchanges 33 industry sub-indexes with a drop of 6.45%.

Shares of companies that benefited from the stay-at-home lifestyle were subdued, after the health minister said the COVID-19 infection situation was improving such that emergency conditions could soon be lifted in most parts of the country.

Gamemaker Bandai Namco lost 2.81% and frozen food maker Ajinomoto fell 2.27%.

Shares that would benefit from an economic reopening advanced, with airlines jumping 3.76% and railway operators rising 1.69%.

Department stores rose, with Takashimaya up 4.04%, Isetan Mitsukoshi gaining 3.66% and Marui Group advancing 2.82%. (Reporting by Junko Fujita; Editing by Rashmi Aich and Subhranshu Sahu)