* Nikkei trims losses after briefly dropping 1 pct
* European funds seen buying blue-chips on dips
* Falls in Chinese shares add concern
By Aiko Hayashi and Chikafumi Hodo
TOKYO, Nov 17 (Reuters) - Japan’s Nikkei stock average dropped on Wednesday but was off its earlier lows as investors took the yen’s weakening against the dollar as a cue to hunt for bargains in carmakers and other exporters.
The Nikkei fell about 1 percent at the open after Wall Street stocks dropped nearly 2 percent due the prospect of more European bailouts and concerns over further tightening measures by China.
But foreign investors such as European fund operators were detected buying Japanese blue-chip shares, providing overall support to share prices, traders said.
“The Nikkei was dragged down by falls in U.S. shares the previous day, but losses in Japanese shares were limited due to the yen’s weakness,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.
“Shares are being supported as we are also seeing a shift in fund flows to equities from bonds,” Yamagishi said.
The benchmark Nikkei .N225 finished the morning session down 0.5 percent, or 51.01 points, at 9,746.09.
The broader Topix .TOPX fell 0.3 percent to 844.97.
The dollar was trading at 83.30 yen, near a six-week high of 83.60 yen reached on Tuesday. [FRX/]
The Nikkei fell to a session low at the open of 9,693.21, down 1 percent from the previous close.
The market is watching whether the Nikkei can rebound towards its five-month intraday high of 9,908.30 hit on Tuesday.
The Nikkei is expected to face resistance at the 200-day moving average of 9,920, but a decisive break above that level could pave the way for it to rise to the closely watched 10,000 mark, traders said.
“If the dollar is up due to the unwinding of dollar-carry positions for the purpose of cutting exposure to risk assets then that may not be too positive for the Nikkei,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
“Big falls in China and other emerging markets also may not necessarily be good for the Japanese market as more bargain-hunting flows could go into emerging markets.”
The Shanghai Composite Index dropped 1.6 percent in morning trade on speculation of more aggressive measures to control inflation by China.
Resource-related shares such as Inpex Corp (1605.T), Japan’s top oil explorer, and trading house Mitsubishi Corp (8058.T) fell after commodity prices dropped broadly the previous day due to wariness over further Chinese tightening measures and the dollar’s strength.
Inpex declined 0.6 percent to 421,500 yen and Mitsubishi slipped 1.2 percent to 2,077 yen.
Mazda Motor Corp (7261.T) jumped 3.1 percent to 231 yen after the Nikkei business daily said trading house Itochu Corp (8001.T) and general contractor Kajima Corp (1812.T) are among the nearly 10 firms that will buy Ford Motor Co’s (F.N) stake in the automaker. [ID:nSGE6AF0K1] (Additional reporting Antoni Slodkowski; Editing by Joseph Radford)