(Reuters) - Japan's Nikkei average breached 10,000 for the third straight session before trimming gains to 0.9 percent Tuesday, lifted by defensive buying as investors looked for signs of further easing from the Bank of Japan.
Real Estate stocks were the top performing sector on the main board, with Mitsui Fudosan Co Ltd (8801.T) up 3.2 percent and outperforming the broader market.
The benchmark Nikkei <.N225> was 91.86 points higher at 9,981.72 by the midday trading break after reaching 10,007.82 in morning trade. The index has climbed above 10,000 in two previous sessions but failed to close above it on both days.
The broader Topix <.TOPX> gained 0.7 percent to 851.01.
Market players said investors picked up real estate, chemicals and steelmakers ahead of a closely watched BOJ and U.S. Federal Reserve meeting later in the day.
Although the market does not expect additional moves by the BOJ today, and the U.S. (Federal Reserve) is expected to string markets along with hopes for QE3, there is really no other news to trade on, said Hajime Nakajima, a sales trader at Cosmo Securities in Osaka.
Japan's central bank surprised markets in February by boosting asset purchases by 10 trillion yen ($123 billion) and, in line with political pressure, set a 1 percent inflation goal, suggesting more vigorous efforts to pull Japan out of deflation.
The BOJ is expected to announce its regular policy decision after 0300 GMT, and is likely to extend a loan programme for growth industries and stress its willingness to take more monetary steps to stimulate the economy as needed.
Trading volume was heavy during the morning session, with the Nikkei trading at 82 percent of its daily 90-day average volume.
The market has been driven by intense momentum so a little break now would not be surprising. Technical indicators show the market is overheated, but there may not be another correction yet as cash continues to flow in, said Hajime Nakajima.
The Nikkei is up 18.1 percent this year on the back of a run of robust U.S. economic data, and liquidity boosting programmes by global central banks that have drawn investors back into risk assets.
Exporters were steady on Tuesday, with Nissan Motor Co Ltd (7201.T) up 0.6 percent and Honda Motor Co Ltd (7267.T) gaining 0.7 percent and industrial robot maker Fanuc Ltd (6954.T) adding 1.6 percent.
The dollar was last traded at 82.17 yen, stepping further away from Monday's high of 82.52.
Domestic institutional investors are likely to sell around the current range around 10,000 as they head into the end of the business year. After the 20th, we could see fresh buying, said Fujio Ando, managing director at Chibagin Asset Management.
Meanwhile, individual investors are stepping in to buy blue chips even at a premium and then taking profits, he said.
Japan's iron and steel subindex .ISTEL.T gained 1.2 percent after Nomura added the sector to its long candidate list for the week, replacing the energy resources sector.
The brokerage wrote in a note to clients that last week's market correction and turnaround was ... confirmation of appetite for buying on dips mainly amid yen depreciation. However, substantial risk remains for a near-term correction.
Nomura said the focus on high-beta sectors is shifting to a more cyclical sector selection.
Among heavily traded shares, Mazda Motor Corp (7261.T) fell 1.5 percent after Mitsubishi UFJ Morgan Stanley Securities downgraded the automaker to underperform from neutral and cut its price target to 110 yen from 130.
Asahi Kasei Corp (3407.T) slumped 3.3 percent after it said it would buy U.S. medical equipment maker Zoll Medical Corp (ZOLL.O) for $93 a share, a 24 percent premium to Zoll's closing price on Friday, or $2.21 billion.
I think this is a positive move in the long term and a sign that it (Asahi Kasei) is speeding up its global reach, a trader said. But people are concerned about the (price) of the acquisition and its impact on the company's finances.
(Additional reporting by Dominic Lau; Editing by Jacqueline Wong)