Nikkei set to fall for 3rd straight day as yen rebounds

TOKYO, Jan 9 (Reuters) - Japan's Nikkei average is expected to open lower on Wednesday and head for a third straight session of losses, hurt by a rebounding yen as investors took profit on the dollar after its recent gains against the Japanese currency.

The Nikkei is likely to trade between 10,350 and 10,500, strategists said. Nikkei futures in Chicago closed at 10,425 on Tuesday, down 0.5 percent from the Osaka close of 10,480. "Today's Nikkei will still be in a correction period," said Takashi Hiroki, chief strategist at Monex Inc. The yen was up 0.1 percent at 86.90 to the dollar on Wednesday after strengthening 0.9 percent in the previous session, its second straight day of gains. The Nikkei has rallied more than 21 percent over the past two months, spurred by yen weakness after Shinzo Abe, who became Japan's prime minister late last month, called on the central bank to adopt aggressive policy to energise the ailing economy, including setting an inflation target of 2 percent. The rally has pushed up valuations of Japanese equities, which carry a 12-month forward price-to-earnings ratio of 13, versus 12.7 for the U.S. S&P 500 and 11.5 for the pan-European STOXX Europe 600. However, Hiroki said any sell-off was likely to be limited as investors may bet on a stronger Wall Street performance on Wednesday after Alcoa Inc, the largest aluminum producer in the United States, reported an in-line fourth-quarter profit after the market close. Alcoa shares rose in after-hours trading. On Tuesday, the Nikkei shed 0.9 percent to 10,508.06, finding support at its five-day moving average at 10,502.67. The broader Topix index lost 1 percent to 871.88.

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STOCKS TO WATCH --PANASONIC CORP Panasonic, in a display of technological one-upmanship with its South Korean rivals, unveiled a prototype of the world's largest OLED screen on Tuesday. --SEVEN & I HOLDINGS CO Seven & I's quarterly operating profit rose 4.8 percent as higher profits from its core 7-Eleven stores were supported by stronger income figures at other retail formats, leading the Japanese firm to maintain its record annual outlook.