Trend Micro Inc., a maker of computer anti-virus software, led the Nikkei's fall with a loss of 4.9 percent to 3,480 yen after Microsoft Corp said on Tuesday it will start a free anti-virus service.
But Daiwa Securities Group and other brokerage firms advanced on recent rises in the market while steel stocks also drew buyers, helping the broader TOPIX index to add gains.
Nissan Chemical Industries Ltd. climbed after UBS published a positive note on the chemical manufacturer.
Investors have shifted their focus from defensive stocks to shares of blue-chip companies, many of which posted strong quarterly earnings, said Masayoshi Okamoto, head of dealing at Jujiya Securities.
''Defensive stocks held firm last month, unfazed by growing uncertainty in global security risks,'' he said. In July, the drug sector IPHAM.added 3.4 percent while the TOPIX lost 0.9 percent.
''Still, this is just a slight pull-back as the market is experiencing the first stage of rebound,'' Okamoto added.
Defensive stocks are those seen as holding less risk than the overall market, being less affected by economic downturns.
The Nikkei turned negative in the last trading hour to end down 50.52 points at 16,020.84. The benchmark had closed at its highest level since May 19 on Wednesday.
The broader TOPIX index was up 0.11 percent at 1,631.46.
While some are cautious about further advances in the market, others like Fujio Ando, a market analyst at Chibagin Asset Management, remain keen on Japanese stocks.
''As we look ahead to first-half earnings, there are a lot of expectations for upward revisions. About 30 to 40 percent of firms could revise higher,'' he said.
Ando said he was looking for upward revisions from exporters and high-tech firms, especially from firms with a high weighting of European sales with the euro firm at the moment.
DRUGS DOWN, STEEL SHINES Daiichi Sankyo, Japan's second-biggest drug maker, fell 2.5 percent to 3,160 yen, while No.1 Takeda Pharmaceutical Co. Ltd.
lost 0.5 percent to 7,640 yen.
Tokyo Electric Power Co. Ltd. also fell victim to profit-taking, slipping 1.6 percent to 3,150 yen.
Other losers included consumer loan firms such as Promise Co.
Ltd., which gave up recent gains after a media report that their earnings may be impacted by reimbursing clients who were found to have been charged excessive interest on loans.
Promise shed 3.1 percent to 5,620 yen, losing part of its 17.4 percent gain of the last three sessions.
In the steel sector, Kobe Steel Ltd. surged 5.1 percent to 374 yen and JFE Holdings Inc. jumped 4.4 percent to 4,770 yen.
Tsuyoshi Segawa, a strategist at Shinko Securities, said some of the concerns about profit outlooks have eased.
''A fall in oil prices in New York and a sign of a calming down in Middle East conflicts eased concerns that surges in commodity prices such as iron ore could squeeze steel makers' earnings,'' he said.
Brokerage firms advanced as investors bet the recent upswing in the stock market will boost earnings at securities firms.
Daiwa Securities rose 4.5 percent to 1,469 yen and Nomura Holdings Inc. added 2 percent to 2,250 yen.
A notable gainer was Nissan Chemical Industries Ltd. which jumped 4.8 percent to 1,519 yen after UBS analyst Takaaki Muramatsu said in a note to clients on Wednesday that the company was set to have a much better first half than expected.
Trade activity rose to its highest level since June 9, with 2.29 billion shares changing hands on the Tokyo exchange's first section.
Declining shares beat advancers 799 to 767.
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