* Exporters weak as dollar trades below 82 yen threshold * Fast Retailing bucks weakness on strong monthly sales By Ayai Tomisawa TOKYO, Dec 5 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.
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