Nikkei falls as U.S. budget concerns push yen higher

* Exporters weak as dollar trades below 82 yen threshold
* Fast Retailing bucks weakness on strong monthly sales

By Ayai Tomisawa
TOKYO, Dec 5 (Reuters) - Japan's Nikkei share average
extended the previous session's losses on Wednesday, retreating
further from this week's seven-month high as investors sold
exporters on concerns over the U.S. budget tangle, which lent
strength to the yen.
U.S. legislators continue to negotiate a deal to avoid a
$600 billion package of tax hikes and federal spending cuts that
would begin on Jan. 1 and could push the economy into recession.
Optimism on progress was dented by remarks from President
Barack Obama, who rejected a Republican proposal on the crisis
as "out of balance" and said any deal must include higher tax
rates for the wealthiest Americans.

The Nikkei dropped 0.2 percent to 9,410.93.
"The risk of profit-taking is rising as the dollar has
breached the support level of 82 yen," said Yutaka Miura, senior
technical analyst at Mizuho Securities. But he added that
expectations for more monetary easing in Japan should help to
limit losses in the stock market.
Exporters weakened, with Honda Motor Co dropping
1.1 percent, Toyota Motor Corp falling 0.7 percent and
Canon Inc shedding 1.6 percent. All were among the 10
most traded stocks on the board by turnover.
The dollar was trading at 81.89 yen on Wednesday, down from
its 7-1/2 month high of 82.84 touched on Nov. 22. A pullback in
the dollar below the 82 yen threshold could trigger selling in
the Japanese equities market as a stronger yen cuts the value of
exporters' overseas incomes when repatriated.
Analysts said that since the Nikkei briefly broke above the
psychologically important 9,500 mark on Monday, investors grew
cautious given the speed of the recent rise.
"What's going to happen with the U.S. 'fiscal cliff'
problems? Where is the U.S. economy heading and are there more
developments on the Japanese political front? Such questions are
on investors' minds while they carefully look for trading cues,"
said Hiroichi Nishi, general manager at SMBC Nikko Securities.
"Without positive leads on those issues, they probably won't
chase the market higher."
Over the past three weeks, the Nikkei benchmark has rallied
about 9 percent, led by exporters, and the yen has fallen on
speculation that the Bank of Japan will be pushed to adopt
aggressive policy action after Japan's Dec. 16 election.
The leader of the main opposition Liberal Democratic Party,
Shinzo Abe, has been calling for the Bank of Japan to take
bolder action, including setting a 2 percent inflation target
and embarking on "unlimited easing". The LDP is expected to win
the most seats and form the government after the election.
Bucking overall market weakness, Fast Retailing Co
climbed 1.5 percent to 18,970 yen after it said same-store sales
at its Uniqlo casual clothing chain in Japan surged 13.7 percent
in November from a year earlier due to strong sales of its down
jackets and winter underwear.
It was the third-most traded stock on the main board by
turnover.
The broader Topix index was 0.4 percent lower at
778.71.