TOKYO Japan's Nikkei share average edged up on Wednesday as investors moved into defensive stocks such as retailers and steelmakers, which offset losses at exporters stemming from worries over the U.S. budget tangle.
At the midday break, the Nikkei .225 was up 0.1 percent to 9,443.65 after weakening earlier. The broader Topix .TOPX shed 0.1 percent to 781.17.
Analysts said investors sold shares of exporters on worries about the U.S. economy.
Instead, investors found a safe haven in such stocks as Fast Retailing Co (9983.T), which posted strong monthly sales in its clothing chain, and specialty steelmakers after a bullish brokerage report on the sector.
"Investors are looking into individual news and rating changes for reasons to buy today rather than basing their investment decision on a macro factor," said Hikaru Sato, a senior technical analyst at Daiwa Securities. "When they cannot find a currency factor to trade on bellwether exporters, they pay attention to defensive stocks."
The dollar last traded at 82.27 yen after falling below 82 yen earlier. 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 income when repatriated.
Exporters weakened, with Honda Motor Co (7267.T) dropping 1.0 percent, Toyota Motor Corp (7203.T) falling 0.4 percent and Canon Inc (7751.T) off 0.7 percent.
Investors continued to worry about the U.S. fiscal cliff, which could drag down the dollar.
U.S. legislators continue to negotiate to avoid a $600 billion package of tax hikes and federal spending cuts that would begin on January 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.
Market observers said that the Nikkei is expected to stay in a narrow range for the rest of Wednesday trade. Since the Nikkei recent had a rapid rise and briefly broke above the psychologically important 9,500 mark on Monday, investors have been cautious.
"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 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 December 16 election.
The leader of the main opposition Liberal Democratic Party, Shinzo Abe, has been calling for the BOJ 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 in the election and form the government.
Fast Retailing 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 down jackets and winter underwear.
It was the fourth-most traded stock on the main board by turnover.
Specialty steel makers rose, with Aichi Steel Corp (5482.T) gaining 3.6 percent after Credit Suisse upgraded the steelmaker to 'outperform' from 'neutral', saying the inventory cycle for specialty steel had likely bottomed and valuations were low.
Daido Steel Co Ltd (5471.T) rose 5.7 percent after the brokerage initiated its coverage with a 'buy' rating, citing an earnings recovery.
(Editing by Richard Borsuk)