* Nikkei ends morning down 0.7 pct, nears 26-year lows
* Drugmakers drop, Merck plans to take over Schering-Plough
* Some exporters rebound after recent sell-off
By Aiko Hayashi
TOKYO, March 10 (Reuters) - Japan's Nikkei average fell 0.7
percent on Tuesday as drugmakers such as Astellas Pharma <4503.T>
slid amid worries about their global competitiveness after Merck
<MRK.N> proposed to take over Schering-Plough <SGP.N>.
The Nikkei booked a 26-year closing low of 7,086.03 on
Monday, and many market players expect it to break below the
26-year intraday low hit in October of 6,994.90 sometime in the
next few days.
Market players said hopes for the government to step into the
market, often called price keeping operations or PKOs in Japan,
were lending support.
"Hopes that the government will implement powerful PKOs are
keeping the Nikkei from breaking below 7,000. If it weren't for
those hopes, it would have gone below that level by now," said
Fumiyuki Nakanishi, manager at SMBC Friend Securities.
"As part of moves to reduce risky assets, investors are
shifting funds to cash from equities."
Market participants have said buying by what they believe to
be public pension funds has been supporting the benchmark when it
approaches the October trough.
The benchmark Nikkei <> shed 52.76 points to 7,033.27,
after briefly turning positive at one stage.
Although the market has been creeping down towards the key
level, technical charts show the Nikkei's downward momentum is
not as strong as when the index fell to the 26-year low in
October.
The broader Topix <> declined 1.2 percent to 701.70. It
lost 1.5 percent on Monday to book a fresh 25-year closing low.
Kenichi Hirano, operating officer at Tachibana Securities,
said likely buying by pension funds and hopes for government
action were supporting the market, but that does not mean it will
get back on an upward trend.
"There's even no guarantee about how the market will move in
the afternoon," Hirano said.
DRUGMAKERS SLIDE
Shares of drugmakers dropped after Merck's proposed a $41
billion takeover of Schering-Plough <SGP.N>. []
"Japanese drugmakers will be at disadvantage from a
competitiveness standpoint if their European and U.S. peers
become bigger through mergers and acquisitions," said Nakanishi
at SMBC Friend Securities.
Astellas shares sank 5.6 percent to 2,850 yen and Chugai
Pharmaceutical Co <4519.T> dropped 5.7 percent to 1,555 yen.
Takeda Pharmaceutical Co <4502.T>, Japan's biggest drugmaker,
extended losses after the stock dived 13 percent on Monday,
plunging by its daily limit on fears the replacement for its
best-selling diabetes drug could be delayed by years in the
United States. []
Takeda shed 4.2 percent to 3,180 yen.
But some high-tech exporters rebounded after being sold off
in recent days, with Kyocera Corp <6971.T> climbing 1.5 percent
to 5,520 yen.
Banks also gained ground. Top lender Mitsubishi UFJ Financial
Group <8306.T> added 2.4 percent to 390 yen and Sumitomo Mitsui
Financial Group <8316.T> climbed 2.1 percent to 2,700 yen.
Trade was light on the Tokyo exchange's first section, with
803 million shares changing hands, below last week's morning
average of 946 million.
Declining stocks outpaced advancing ones by more than 3 to 1.
(Reporting by Aiko Hayashi; Editing by Chris Gallagher)
