Japan's Nikkei average fell for a second session on Thursday and slipped further from a one-year high hit earlier this week, but it is still set for best Q1 in 24 years.
The benchmark has soared more than 19% so far this year on the back of a global equities rally as accommodative monetary policies by central banks and strong US economic data drew investors back into riskier assets.
On Thursday, the Nikkei eased 0.7% to 10,114.79 as investors cashed in ahead of the Japanese fiscal year-end.
Contributing to the dip was the slightly stronger yen against the greenback, with the dollar last trading at 82.57 yen, off this Tuesday's high of 83.39.
Exporters, sensitive to the Japanese currency, suffered, with Toyota Motor Corp off 1.7%, Honda Motor Corp losing 2.2% and industrial robot maker Fanuc Corp down 1.8%.
"I do feel that we are now stepping away from liquidity market to a market that is driven principally by earnings and actual fundamentals," said Masahiro Ayukai, investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
The Nikkei marked a one-year closing high on Tuesday following comments by US Federal Reserve Chairman Ben Bernanke that did not rule out further action to support growth, although strategists said the surge was limited to one session.
"If market participants were convinced that this (QE3) was a real possibility the market would have remained strong even with the ex- dividend ...The market is becoming much more sensitive to the actual economic outlook and earnings figures," said Ayukai.
Japanese fund managers cut their domestic stock weighting to 33.3% in March from a record high of 35.1% hit last month, a Reuters poll showed on Thursday, as they trimmed allocation of Asian stocks and ramped up purchases of European stocks and commodities.
Foreign investors also took a break from buying, as they turned net sellers for the week through March 24 after twelve straight weeks of buying, the latest data from Japan's Ministry of Finance showed.
"We saw a lot of profit-taking in the US and other overseas markets, we saw a couple of macro data points weaker than expected, so we have a little bit of profit-taking," a sales trader at a foreign bank said.
Market players said investors sought out retailers and defensives that rely on domestic demand instead of blue-chip exporters.
Japan's retailers were up 0.7% and pharmaceuticals advanced 0.8%.
The broader Topix fell 0.8% to 857.74.
Topping the list of most actively traded stocks was Sharp Corp, which jumped 6.7% and extended the previous session's more than 15% surge after it said this week it will issue shares worth USD 808 million to Taiwan's Hon Hai Precision Industry.
Despite the rally, Sharp was still not yet in "overbought" territory with its 14-day relative index at 65. 9 , below the 70 threshold that signals a stock may be poised to fall.
Among the gainers was mobile gaming operator DeNA Co Ltd, which gained 6.3% after it said its Chinese subsidiary had formed a tie-up with China's three major mobile carriers.
However, Tokyu Corp skid 2.1% after Nomura cut its rating on Japan's leading railway operator to "neutral" from "buy", saying the company now looked less undervalued.
According to Thomson Reuters Datastream, Tokyu carried a 12-month forward price-to-earnings ratio of 16.7, compared with rival East Japan Railway's 11.7 and the Topix land transport index's 13.7.
Trading volume on the main board was still thin, with just under 2 billion shares changing hands on the main board, although it was a slight improvement from 1.96 billion shares traded on Wednesday.
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