TOKYO (Reuters) - Japan's Nikkei share average slipped for a second day on Tuesday as investors bagged profits on blue chip stocks following February's 10.5 percent rally, although some attractive valuations and a softer yen supported sentiment.
Honda Motor Co slid 1.9 percent, Sony Corp eased 0.8 percent, Panasonic Corp shed 2.1 percent and Nomura Holdings lost 1.3 percent.
Investors opted instead for defensive sectors such as pharmaceuticals .IPHAM.T and utilities, up 0.9 percent and 1.2 percent, respectively.
The benchmark Nikkei closed 0.6 percent lower at 9,637.63 after losing 0.8 percent on Monday. Mid-last week, the index touched a 7-month high of 9,866.41.
"Over the past couple of days, I've taken profits on some high-beta stocks such as financials and technology because such names have sky rocketed in the last couple of weeks. I just trim down my holdings," said Yasuo Sakuma, a portfolio manager at Bayview Asset Management.
Sakuma said he was waiting for further market weakness before adding to his positions.
"We're in an excess liquidity driven market," he said, predicting the Nikkei would not correct more than 3 percent in the next two weeks.
March, the final month of Japan's fiscal year, tends to be the strongest month for the Nikkei, with an average monthly rise of 1.43 percent for the index between 1972 and 2011.
Reflecting that, the Nikkei volatility index .JNIV, a fear gauge, fell 2.8 percent on Tuesday. The lower the volatility index, the higher the risk appetite.
China-related shares extended losses for a second session, with the Nikkei China 50 index .NCHN down 1.4 percent after the world's second-largest economy cut its 2012 growth target to an 8-year low of 7.5 percent, as Beijing looks to reduce its reliance on external spending and foreign capital.
"The news of China cutting its growth outlook came out during market hours yesterday and although there was selling of China-related stocks afterwards (in Japan) they are extending losses today based on U.S. market reaction," said Masayuki Doshida, a senior market analyst at Rakuten Securities.
The broader Topix stock index fell 0.7 percent to 827.35.
More than 2.5 billion shares changed hands on the main board, up from 1.92 billion in the previous session.
Bridge makers surged after an expert panel set up by the Tokyo Metropolitan Expressway Co Ltd, known as Shutoko, convened its first meeting on Monday to discuss upgrading expressways in Japan's capital.
The Nikkei has risen 14 percent so far this year, boosted by a run of U.S. economic data suggesting a robust recovery and accommodative policies by global central banks that have pushed investors back into risk assets.
Market participants said that domestic institutional investors' selling had capped recent gains.
"Domestic investors are selling and the foreign buying that has so far pushed the market higher is taking a break," said Kenichi Hirano, operating officer at Tachibana Securities.
"Excess liquidity in global markets continues to support stocks, but it does look like the Nikkei will adjust a little more in March, so this is the last chance to buy."
In terms of valuations, the Topix index carried a 12-month forward price-to-book ratio of 0.94, lower than 1.96 for the S&P 500 .SPX and 1.37 for the STOXX Europe 600, data from Thomson Reuters Datastream showed.
Editing by Ian Geoghegan