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Tokyo stocks fell 0.58 percent Wednesday morning as investors locked in profits ahead of US Federal Reserve chief Ben Bernanke's congressional testimony.
The Nikkei 225 index gave up 85.20 points to 14,513.92 by the break while the Topix index of all first-section shares was down 0.24 percent, or 2.95 points, to 1,207.59.
"The Nikkei's rebound (in the past few days) has been supported in part by expectations for higher earnings on the back of a stronger dollar," said Yoshihiro Okumura, general manager for research at Chibagin Asset Management.
"But much of this appears to be priced in already," he told Dow Jones Newswires.
Investors were cautious as Bernanke is to give his six-monthly testimony over two days in Washington from Wednesday.
They will be looking for hints about the Fed's view of the US economy and its plans on when to wind down its $85 billion-a-month bond-buying scheme
They are also waiting for a meeting later in the week of the Group of 20 finance ministers and central bank governors and for Japanese upper house elections on Sunday, which are expected to consolidate Prime Minister Shinzo Abe's grip on power.
In Wednesday trading shares in electronics giant NEC soared 4.76 percent to 242 yen after the Nikkei business daily reported it will likely abandon smartphone production after failing to bring China's Lenovo Group on board to bolster the money-losing business.
Mitsubishi Motors jumped 12.50 percent to 162 yen following a Nikkei report that the automaker will likely pay out 30-40% of its profit to shareholders for the year to March through dividends.
The company is resuming dividend payments for the first time in 16 years, and is projecting a net profit of 50 billion yen.
The dollar was at 99.40 yen in Tokyo midday trade on Wednesday up from 99.04 yen in New York on Tuesday afternoon but still down from the upper half of the 99-yen range seen in Tokyo on Tuesday.
The euro bought $1.3140 and 130.59 yen against $1.3164 and 130.43 yen in US trade.
US stocks Tuesday snapped a three-day streak of records, with the Dow Jones Industrial Average falling 32.41 points, or 0.21 percent, to 15,451.85.