Nikkei flat; slump in Softbank offset by weaker yen

* Nikkei flat; Topix advances 0.7 pct

* Softbank slumps 16 pct, in talks to invest in Sprint Nextel

* 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 it was in talks to invest in U.S. firm Sprint Nextel

, but exporters gained as news of the potentially huge deal weakened the yen.

Trade was active, with Fast Retailing

, also another benchmark heavyweight, tumbling some 10 percent on disappointing results to help keep the index near its lowest levels in more than two months.

A source has said Softbank is looking at a controlling stake in Sprint worth more than 1 trillion yen ($12.8 billion) and the talks have also spurred speculation that the Japanese firm could also make a run at other companies via Sprint, potentially costing 2 trillion yen.

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

"The valuation is attractive but everybody else says that's a 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 and was the fourth-most traded stock.

By the midday break, the Nikkei

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

The benchmark Nikkei has fallen 8 percent since hitting a four-month high on Sept. 19 though it is up 1.1 percent this year.

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 by concerns that the upcoming quarterly earnings season would be weak due to sluggish global growth.

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

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

Toyota Motor Corp , Canon Inc and TDK Corp

were up between 1.9 and 3 percent.

The broader Topix

advanced 0.7 percent to 719.04 in active trade, with volume at 58 percent of its full daily average for the past 90 days.

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

Data from Japan's Ministry of Finance showed foreign investors turned net buyers of Japanese stocks last week after two weeks of net selling.

(Editing by Edwina Gibbs)

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