TOKYO (Reuters) - The Nikkei average fell 0.7 percent on Tuesday as investors locked in recent gains ahead of an interest rate decision by the U.S. Federal Reserve, while Honda Motor and other exporters were hurt by a firmer yen.
Nippon Steel Corp and other steel makers tumbled after the Nikkei business daily said Toyota Motor Corp plans to ask for a cut in steel prices of about 30 percent amid slower demand.
But confectionery maker Morinaga & Co climbed after a report that it was in talks to merge with dairy product firm Morinaga Milk Industry Co.
"Today's fall is simply due to profit-taking," said Fumiyuki Nakanishi, manager at SMBC Friend Securities.
"Investors are closing out as they want to see the size of the U.S. rate cut, because depending on the result, currencies will move."
The benchmark Nikkei slipped 56.50 points to 8,608.16, after falling over 2 percent at one stage. It gained 5.2 percent the previous day.
The broader Topix declined 1.4 percent to 835.07.
The market is awaiting the outcome of a Fed policy meeting on Tuesday, and the Fed is widely expected to cut rates by at least a half percentage point to 0.50 percent.
Investors will also scrutinise the accompanying statement for clues on what alternative policy steps the central bank will take to dispel the recession.
Trade was light on the Tokyo exchange's first section, with 949 million shares changing hands, compared with last week's morning average of 1 billion.
Declining shares outpaced advancing ones by nearly 3 to 1.
"What we saw is light volume that is particular to pre-event trade. Investors are waiting to see the outcome of the Fed meeting, as they lack any other significant trading factor," said Takahiko Murai, general manager of equities at Nozomi Securities.
EXPORTERS DOWN
The dollar dropped 0.1 percent to 90.53 yen but stayed above a 13-year low of 88.10 yen hit on Friday. Investors fret over a stronger yen as it curbs Japanese exporters' overseas profits when they are repatriated.
Shares of Honda dropped 4.6 percent to 1,990 yen, while Sony Corp lost 4.4 percent to 1,853 yen and Kyocera Corp shed 2.2 percent to 6,250 yen.
