(Reuters) - The Nikkei share average edged down in thin trade on Wednesday ahead of a closely watched Italian bond sale this week, while Tokyo Electric Power Co plunged after Japan's trade minister urged the utility to consider temporarily going under state control.

Tepco, which faces massive compensation and clean-up costs in the wake of the Fukushima nuclear crisis, was the heaviest traded stock by turnover on the main board, shedding 11.9 percent to 186 yen to hit its lowest level in six months.

Toshiyuki Kanayama, senior market analyst at Monex Inc, said it was inevitable that Tepco would have to be nationalised, at least for the short term.

Short-term traders are buying and selling Tepco, similar to Olympus. These are really the only stocks that are moving at all so people are picking them up and selling them, seeking short term gains, he said.

The stock, which has lost more than 90 percent this year, was deep in oversold territory with its 14-day relative strength index at 19. Thirty or below is considered oversold.

The Nikkei ended down 0.2 percent to 8,423.62, stuck between its 25-day moving average at 8,464.46 and the 50 percent retracement of its rally from late November to early December at 8,431.

The broader Topix index dipped 0.4 percent to 721.45.

Megabanks and securities stocks were sold as market players trimmed their risk positions ahead of Italy's sale of up to 8.5 billion euros in debt on Thursday.

Sumitomo Mitsui Financial Group dropped 1.8 percent to 2,118 yen and Japan's No. 1 broker Nomura Holdings Inc fell 1.7 percent to 235 yen. Ryota Sakagami, chief strategist at SMBC Nikko Securities, said traders will mostly keep to the sidelines until there are significant developments out of Europe.

Until the European Central Bank decides to buy more euro zone debt and leaders decide to boost their rescue fund to a sufficient level, it is difficult for the market to move.

LIKELY THIN

Trading remained thin, with 1 billion shares changing hands on the main board, although it ticked up from Tuesday's 807.2 million shares, its lowest level in seven years.

The Nikkei is flat so far this month, versus an average monthly rise of 1.4 percent for the month of December between 1981 and 2010. The benchmark gained an average of 0.8 percent for the month of January in that 30-year period.

For the year, the Nikkei is down 17.6 percent and the broader Topix has lost nearly 20 percent, underperforming a 0.6 percent rise in the U.S. S&P 500.

Despite this year's drop, the Topix still looked more expensive than the S&P 500 and the STOXX Europe 600. The Japanese index carried a 12-month forward price-to-earnings ratio of 11.7, versus the S&P 500's 11.3 and STOXX Europe 600's 9.4, data from Thomson Reuters Datastream showed.