Japanese stocks pared early gains to trade lower by mid-afternoon on Thursday as jumping bank shares failed to outweigh profit-taking in auto makers and technology issues. Selling hit Shin-Etsu Chemical <4063.T> after its profit projection fell short of a market consensus. Meanwhile, buyers flocked to Sumitomo Trust and Banking Co <8403.T> and UFJ Holdings Inc <8307.T> after Sumitomo Trust said it was in talks with troubled UFJ Holdings to buy UFJ Trust Bank. Analysts said investors had started to take a breather after broad-based buying lifted the market in the past two days following its tumble to a three-month low on Monday. "The market has been undergoing really volatile sessions and gains in the last two days seemed too sharp," said Minoru Tada, a director at World Nichiei Frontier Securities. "Stocks can't keep climbing unless players see reasons for buying. Without clear signs of a recovery in U.S. stocks, the Nikkei can't jump higher from the 11,000 line."
The Nikkei lost 1.17 percent to 10,839.93 by 0433 GMT, after having risen as high as 11,045.66. The gauge had gained 4.4 percent in the previous two sessions after gross domestic product (GDP) figures on Tuesday showed that Japan's economy grew more quickly in January to March than economists had expected. The broader TOPIX index <.TOPX> was down 0.28 percent at 1,103.02. Shin-Etsu Chemical tumbled 4.68 percent to 4,060 yen after the world's largest silicon wafer maker posted a record profit for the ninth year, but its net profit forecast of 80.0 billion yen for the current year came short of the consensus estimate of 84 billion yen in a poll of 15 analysts by Research. Advantest Corp <6857.T> dropped 4.07 percent to 7,300 yen after rising 6.6 percent in the previous two days. Profit-taking also hit Toshiba Corp <6502.T>, which sank 2.39 percent to 450 yen. Japan's largest auto maker, Toyota Motor Corp <7203.T>, fell 1.53 percent to 3,850 yen. But UFJ Holdings rose 3.21 percent and Sumitomo Trust added 3.15 percent after Sumitomo Trust said it was in talks with UFJ about purchasing UFJ Trust Bank.
Banking sources said earlier that Sumitomo Trust was in final talks to take over UFJ Trust and that UFJ Holdings was likely to generate 300 billion yen ($2.63 billion) by selling a majority stake in UFJ Trust. The news prompted Goldman Sachs to raise its rating on Sumitomo Trust to "in-line" from "underperform", saying the share price had underperformed dramatically since the beginning of this year and it seemed cheap from a valuation point of view.////