Nikkei falls on U.S. debt default worries, strong yen

 * Five-day moving average of 10,020 likely to hold

 * Sharp selling not expected ahead of earnings -Chibagin
Asset

 By Ayai Tomisawa	

 TOKYO, July 25 (Reuters) - The Nikkei average snapped a
three-day run of gains on Monday after U.S. debt ceiling worries
nudged the yen higher, but a key technical support is likely to
hold on hopes that upcoming Japanese corporate earnings will be
strong.	

The U.S. government's failure to win an agreement
on the debt ceiling has made markets more nervous but Tokyo
stocks were not expected to tumble further at this stage unless
there are sharper gains in the yen.	

 "The market is jittery about the possibility of a U.S. debt
default, but Tokyo stocks are gradually falling, not sharply, as
they are tracking the pace of the gradual rise in the yen," said
Fujio Ando, senior managing director at Chibagin Asset
Management.	

 " Investors do not want to sell stocks sharply as
they are also cautious about the possibility of foreign exchange
intervention if the yen strengthens sharply."	

 White House officials and Republican leaders scrambled to
reassure that the United States would avert a debt default, but
the two sides did not appear to be moving closer to a deal
 .	

 The Nikkei shed 0.6 percent to 10,068.63 at the
midday break, with analysts saying its 5-day moving average at
10,020 is likely to hold. The broader Topix was down 0.6
percent to 863.69.	

 Trade may be subdued ahead of corporate earnings
later this week, with most expecting the results to provide
further evidence of a recovering economy.	

 "Company earnings will likely provide some support
this week. Macro indicators such as export data are showing
signs of recovery, so there won't be much selling going
forward," Ando said.	

 Japan's exports rose in June and the pace of annual declines
slowed, bringing the trade balance back into surplus as factory
output and sales steadily recover from the March 11 earthquake,
tsunami and nuclear meltdown. 	

 The dollar slipped in early Asia-Pacific trade on Monday,
falling to a near four-month low of 78.13 yen , from 78.52
yen on Friday. It trimmed its losses and traded at 78.39 during
the midday break.	

 Exporters were weaker, with bellwether Toyota Motor 
falling 1.4 percent to 3,290 yen and Sony shedding 1.9
percent to 2,061 yen.	

 Tokyo Electric Power Corp tumbled 6.3 percent to
509 yen as profit-taking set in on a report that a compensation
scheme for victims of the nuclear crisis at its tsunami-stricken
Fukushima plant may be enacted as early as next month after
ruling and opposition parties agreed to changes in the bill.	

 "Tepco's shares have been bought back on hopes for the
compensation scheme to be enacted, and now that it is almost
certain it will pass, investors are taking profits on the
stock," said a trader for a domestic brokerage.	

 The utility, known as Tepco, has risen 164 percent from June
9 on hopes for enactment of the bill, against the benchmark's
gain of 6.4 percent over the same period.	

 Shares of drilling-related companies gained in heavy volume
after the Nikkei business daily reported a government-funded
experiment will try to produce natural gas from methane hydrate
on the sea floor by the end of fiscal 2012.  	

The only company in Japan involved in probing undersea oil
and natural gas fields, Japan Drilling , jumped 5.7
percent to 3,170 yen, reaching a three-week high, while boring
machine maker Koken Boring Machine rose 3.4 percent to
541 yen.	
  But Senshukai added 3.3 percent to 530 yen
after the mail-order retailer raised its operating profit
forecast for this year by 50 percent to 3 billion yen ($38
million) on a stronger-than-expected sales recovery and
cost-cutting.	
	
 (Additional reporting by Antoni Slodkowski; Editing by Edwina
Gibbs)