* Nikkei hit by profit-taking after 6 days of gains
* Muted impact from Moody's cut to Japan rating outlook
By Antoni Slodkowski
TOKYO, Feb 22 (Reuters) - Japan's Nikkei average fell 2 percent on Tuesday, away from 9-1/2-month highs and its first decline in seven days, as turmoil in the Middle East triggered profit-taking in blue-chip shares.
With the exception of oil and gas shares, all sectors fell as as investors pocketed profits across the board after the Nikkei's longest winning streak in over a year.
"Once the market broke below 10,750, where there were call options lined up, it extended losses, but at the moment it is just profit-taking triggered by the situation in the Middle East," said Yumi Nishimura, a senior market analyst at Daiwa Securities Capital Markets.
She said it was difficult to predict whether the day's selloff may mean the beginning of a deeper correction for the Nikkei, which is Asia's best performing index this year, adding that more trading cues would come from Wall Street when it reopens on Tuesday after a public holiday.
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By the midday break the Nikkei .N225 average lost 2 percent, or 213.15 points, to 10,644.38. At one point it fell as low as 10,639.78 -- its lowest level in almost two weeks.
The broader Topix .TOPX fell 1.8 percent to 957.17.
Market participants played down any short-term impact on the Nikkei after Moody's Investors Service changed the outlook on the Japan's Aa2 sovereign rating to negative from stable. Investors said all eyes are on oil prices and the Middle East, and the Moody's outlook change only highlights a deep-rooted problem.
Volume was high with over 1.3 billion shares changing hands on the Tokyo stock exchange's first section, suggesting that the day's total will likely come in above last week's daily average of 2.26 billion and mark a 12th straight day of volume in excess of two billion shares.
Market players said any immediate effect on stocks from Moody's move should be limited. However, they said it may have an impact medium-term if political instability persists.
"The downgrade didn't really affect stocks. It triggered some selling in Nikkei futures and pushed bank shares even lower, but oil prices and the situation in the Middle East are much more serious risk factors," said Hideyuki Ishiguro, a supervisor of investment strategy at Okasan Securities.
Banking shares .IBNKS.T, which have advanced 9.5 percent in year to date outperforming the broader market's rally, extended losses in heavy volume after the downgrade.
Mitsubishi UFJ Financial Group (8306.T), Japan's biggest bank by assets, fell 3.4 percent to 454 yen and Mizuho Financial Group (8411.T) lost 3.5 percent to 167 yen.
Blue-chip shares which led advance in recent rally also succumbed to aggressive profit-taking, with the world's No. 1 automaker Toyota Motor Co (7203.T) falling 2.6 percent to 3,805 yen and electronics maker Hitachi Ltd (6501.T) losing 2.6 percent to 484 yen.
Bucking the trend was clothing retailer Parco Co (8251.T) which gained 2.9 percent to 855 yen after Aeon Co Ltd (8267.T), Japan's second-largest retailer, said it will take a 12.3 percent stake in the fashion-oriented shopping mall operator and seek an alliance with the firm helping to lift its urban presence. [ID:nL3E7DL117] (Additional reporting by Ayai Tomisawa; Editing by Edwina Gibbs)