By Tomo Uetake
TOKYO (Reuters) - Japan's Nikkei share average fell to a one-week closing low on Thursday as concerns about Italy's funding costs and the rescue deal for Cyprus prompted investors to take profits on exporters.
The Nikkei closed 1.3 percent lower at 12,335.96, staying below its five-day moving average of 12,437.27 and moving away from a 4-1/2-year high of 12,650.26 struck last Thursday.
"The wider market has performed fantastically this quarter, so it's only reasonable that as it comes to the end of the financial year and with some very pivotal concerns regarding Europe that there is some 'happy profit-taking'," said Stefan Worrall, director of cash equities at Credit Suisse in Tokyo.
He said that investors were eager to take profits ahead of Friday, which is the last trading day of the financial year in Japan and when U.S. and European markets are closed for Good Friday.
Exporters with high exposure to th e euro zone such as Mazda Motor Corp and Sony Corp underperformed, falling 3.2 percent and 3 percent, respectively, after political uncertainty in Italy drove its borrowing costs to five-month highs.
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The euro last traded at 120.41 yen after dipping to a one-month low around 119.95 yen.
The benchmark Nikkei has gained 18.7 percent this year on hopes for Prime Minister Shinzo Abe's bold monetary and expansionary policies, lifting exporters and reflationary stocks such as banks and real estate companies.
During the period, the S&P 500 has gained 9.6 percent, and Europe's FTSEurofirst 300 index has advanced 4.4 percent.
The broader Topix index dropped 0.9 percent to 1,036.78 with 2.98 billion shares changing hands. Last week's average daily volume was 3.06 billion shares.
The marine transport sector lost 3.7 percent and was the worst sectoral performer after the baltic dry index fell for a second day.
Kawasaki Kisen Kaisha dropped 4.8 percent, Mitsui OSK Lines fell 4 percent and Nippon Yusen KK shed 3.2 percent.
Other notable movers on Thursday included Boeing Dreamliner's battery maker, GS Yuasa Corp, which tumbled 11.1 percent after Mitsubishi Motors Corp said a lithium-ion battery in its plug-in hybrid Outlander overheated last week. The automaker sunk 3.9 percent.
Analysts said stocks were expected to rise again after new funds flow in to the market as the new fiscal year starts on April 1, adding that domestic institutional investors may remain sellers until Friday, the last day of trade this financial year.
"We have major events to look forward to next week (in Japan), so investors may not build large positions this week, and worries about Europe are souring the mood," said Kenichi Hirano, a strategist at Tachibana Securities.
Next week, the Bank of Japan's quarterly tankan survey of corporate sentiment is due out on Monday, while the central bank's first policy meeting under its new leadership will be held April 3-4.
On Thursday, BOJ Governor Haruhiko Kuroda said in the upper house of parliament that the central bank would consider buying longer-dated Japanese government bonds and other risk assets in a balanced way and would continue monetary easing until the 2 percent inflation taget is achieved.
People familiar with the BOJ's thinking told Reuters on Wednesday that the central bank was likely to start open-ended asset purchases immediately rather than in 2014 and consider setting a new target to buy longer-dated bonds at next week's meeting.
(Additional reporting by Ayai Tomisawa; Editing by Jacqueline Wong)