* Investors look to ramifications of euro zone steps * Japanese shares show some signs of being overbought in near-term * Expectation of BOJ easing underpins Nikkei By Sophie Knight and Hideyuki Sano TOKYO, July 2 (Reuters) - Japan's Nikkei average retreated from an two-month intraday high to end almost flat on Monday after an early rally, spurred by an agreement to shore up Europe's troubled banks, faltered on concerns over exactly how it would stabilise euro zone banks. There were signs the market was overbought in the near term, although risk sentiment remained positive. Growth sensitive shares such as trading companies, steel and shipmakers were in favour, while defensive shares such as food companies were given the cold shoulder. The Nikkei ended at 9,003.48, almost unchanged, after hitting a two-month high of 9,103.79 at one point. The broader Topix index shed 0.1 percent to 769.34, after rising as high as 778.87. Last Friday, the Nikkei rose above its 200-day moving average of around 8,950, and the 9,000 mark, for the first time in 7 weeks, after a surprise decision by euro zone leaders to allow banks to recapitalize without adding to government debt. "All these things happened on the last day of a quarter and it remains to be seen if the euphoric reaction to the outcome of the summit can actually be sustained until details of agreement are put under closer scrutiny," said Stefan Worrall, director of equity cash sales at Credit Suisse Securities. While markets players were unsure how far Spanish and Italian government bonds will keep falling, Japanese shares were showing signs of near-term overheating, with the Nikkei trading above the upper Bollinger Band, which came at 8,683. The so-called up-down ratio, the ratio of shares that rose and those which fell over the last 25 sessions, rose above 120 percent, a level widely seen as warranting a caution of being overbought. Hideyuki Ishiguro, assistant manager of investment strategy at Okasan Securities, said there should be considerable selling from Japanese retail investors around 9,100 in the Nikkei. "Japanese retail investors have been net buyers for the past 10 weeks, and the average cost of their buying should be around 9,100. So there will likely be some relief selling when the Nikkei recovers to around that level," he said. "The rally has been very fast, so I would rather see consolidation now than further rally," he added. Still, some market players think the Nikkei could recover further to around 9,243, a 50 percent retracement of the Nikkei's fall from March 27 to June 4. SHIPPERS UPBEAT The shipping sector boasted a 1.6 percent gain, the largest of any sector, after underperforming the market last week with a loss of 1 percent. Nippon Yusen rose 2.4 percent. The Bank of Japan's tankan survey showed the business mood of Japanese manufacturers improved in the April-June quarter for the first time in three quarters, as reconstruction in the area worst affected by last year's tsunami makes progress. That help lift steelmakers and other construction-related companies, with Kobe Steel Ltd climbing 2.1 percent and Tokyo Steel Manufacturing Co Ltd rising 1.1 percent. Domestic demand oriented-sectors such as construction have also been supported recently by expectations of rush in demand ahead of a likely sales tax hike in April 2014. A bill to double Japan's consumption tax over three years was passed by the lower house on June 26 and looks set to be passed by the upper house in coming weeks. "The consumption tax legislation appears a green light for the BOJ to ease without fearing that they are monetizing an unsustainable debt burden," wrote Naomi Fink, Japan equity strategist at Jefferies, in a note. There are expectations that the Bank of Japan will expand its easing programme at a policy meeting that concludes on July 12, supporting Japanese shares. Many defensive shares underperformed the overall market, with food companies falling 0.4 percent.