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Nikkei flat; slump in Softbank offset by weaker yen

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* Nikkei flat; Topix advances 0.7 pct

* Softbank slumps 16 pct, in talks to invest in SprintNextel

* Fast Retailing sinks 10 pct after disappointing results

By Dominic Lau

TOKYO, Oct 12 (Reuters) - Japan's Nikkei was flat on Friday,with Softbank Corp

dropping 16 percent after it said itwas in talks to invest in U.S. firm Sprint Nextel

, butexporters gained as news of the potentially huge deal weakenedthe yen.

Trade was active, with Fast Retailing

, also anotherbenchmark heavyweight, tumbling some 10 percent on disappointingresults to help keep the index near its lowest levels in morethan two months.

A source has said Softbank is looking at a controlling stakein Sprint worth more than 1 trillion yen ($12.8 billion) and thetalks have also spurred speculation that the Japanese firm couldalso make a run at other companies via Sprint, potentiallycosting 2 trillion yen.

Softbank's stock slid to a more than four-month low and wason track to post its biggest one-day percentage drop since 2003as investors expressed concern that such an expansion would betoo costly and have no synergy with its Japanese business.

"The valuation is attractive but everybody else says that'sa big risk and I don't see any synergy," said Nicholas Smith,chief Japan strategist at CLSA.

The stock was the most-traded on the main board by turnover.Softbank's rival, KDDI Corp

advanced 2.4 percent andwas the fourth-most traded stock.

By the midday break, the Nikkei

was flat at 8,546.96after falling for a fourth straight session. It was down 3.6percent for the week, which would be its biggest weekly fallsince May as well as a fourth straight week of losses.

The benchmark Nikkei has fallen 8 percent since hitting afour-month high on Sept. 19 though it is up 1.1 percent thisyear.

The news of a potentially huge deal helped weaken the yen to

78.41 against the dollar, down from Thursday's high of 77.94.

That lifted exporters, which have been battered recently byconcerns that the upcoming quarterly earnings season would beweak due to sluggish global growth.

"In some sense, (Softbank Chairman Masayoshi Son) hasactually weakened the yen. The market's gone up, his stock'sgone down," a sales trader at a foreign bank said.

"It's a huge deal. Often when the market turns, it oftencomes from big M&A."

Toyota Motor Corp, Canon Incand TDK Corp

were up between 1.9 and 3 percent.

The broader Topix

advanced 0.7 percent to 719.04 inactive trade, with volume at 58 percent of its full dailyaverage for the past 90 days.

Fast Retailing, the operator of the casual clothing chainUniqlo, was the second-most traded issue after its full-yearoperating profit ended August came in below market expectations,while investors were also disappointed with its earningsguidance for this business year.

Data from Japan's Ministry of Finance showed foreigninvestors turned net buyers of Japanese stocks last week aftertwo weeks of net selling.

(Editing by Edwina Gibbs)

((dominic.lau@thomsonreuters.com)(+81 3 6441 1917)(ReutersMessaging:)(dominic.lau.thomsonreuters.com@reuters.net))

Keywords: MARKETS JAPAN STOCKS/