(Reuters) - Japan's benchmark Nikkei slipped on Thursday ahead of an Italian debt sale that could prove challenging in thin volumes, while the euro's tumble against the yen to a 10-year low pressured exporters.
Elpida Memory (6665.T), Japan's last remaining player in the dynamic random-access memory chip market, sank as much as 10 percent after a report said it may delay paying back 30 billion yen ($385 million) in public funds.
The chipmaker underperformed the Nikkei average, which fell 0.3 percent to 8,398.89, taking cues from declines in U.S. and European shares as well as a broad fall in the euro on renewed concerns over the euro zone sovereign debt crisis.
The broader Topix .TOPX reversed earlier losses and gained 0.1 percent to 722.12.
The sale of 8.5 billion euros of Italian bonds later in the day was in focus, as market players looked to see the outcome of Rome's first long-term debt sale since the European Central Bank offered cut-price loans to entice banks to buy debts of struggling euro zone governments.
If there is any drama from (the Italian bond sale), obviously the U.S. market will fall and it's possible for the Nikkei to fall even further tomorrow, said Hiroyuki Fukunaga, CEO of Investrust.
Yutaka Miura, senior technical analyst at Mizuho Securities, said traders were unloading their risk positions ahead of the bond sale.
The euro hit a one-year low of $1.2887 and a 10-year trough against the yen on Thursday.
Japanese exporters with substantial exposure to Europe came under pressure. Canon Inc (7751.T) dropped 0.4 percent and industrial robot maker Fanuc (6954.T) lost 0.5 percent. Sony erased earlier losses and ended up 0.1 percent.
Financial shares were steady, supported by buying from investment trust funds also known as Toshin funds, traders said.
Japan's banking subindex .IBNKS.T edged up 0.4 percent.
Hajime Nakajima, a sales trader at Cosmo Securities in Osaka, said the Nikkei was likely to end the year at around 8,300.
Everyone is holding onto their cash and people are not willing to invest in risk assets. With this kind of market sentiment, there's nowhere for the cash to go, he said.
Volume on Tokyo's main board remained thin, with 973 million shares changing hands, edging up from Tuesday's 807.2 million shares -- its lowest level in seven years.
Graphic on 2011 asset returns: http:/link.reuters.com/vum35s
Graphics on euro zone debt crisis: http:/r.reuters.com/hyb65p
The benchmark stayed trapped between two technical levels, struggling to top the 25-day moving average around 8,468 but held above 8,363 -- the 61.8 percent retracement of its rally from late November to early December.
For next year, market participants recommended sectors such as infrastructure, home building and building materials, citing expected reconstruction demand after the March earthquake and tsunami.
The Topix construction subindex .ICNST.T is down 1.7 percent this year, faring better than the broader Topix and the Nikkei, which have fallen 20 and 17.9 percent respectively.
Despite this year's better performance, the construction sector had a 12-month forward price-to-earnings ratio of 11.6, only slightly more expensive than the Topix's 11.4.