Nikkei retreats from 6-year high, set for best year since 1972

By Dominic Lau

TOKYO (Reuters) - Japan's Nikkei pulled back from a six-year high on Friday as investors took profit with just two trading days left for a year in which the benchmark has risen more than 50 percent.

The Nikkei <.N225> shed 0.6 percent to 16,083.30 in mid-morning trade after earlier hitting a six-year high of 16,232.69. The index was on track to end a seventh straight day of gains, its longest such run since October.

Takeda Pharmaceutical Co Ltd sagged 5 percent after the drugmaker said it had decided voluntarily to end development activities for fasiglifam, an investigational treatment for type two diabetes, due to concerns over liver safety.

It was the second-most traded stock on the main board after mobile operator SoftBank Corp , which climbed 1.5 percent, hitting a 13-1/2 year high and extending this year's gain to 193 percent to become the second best performer in the Nikkei.

Driven by Tokyo's aggressive fiscal and monetary stimulus, the benchmark Nikkei has rallied nearly 55 percent, heading for its best annual performance since 1972.

Data on Friday showed Japan's industrial output posting the third straight month of gains and core consumer prices accelerating to a fresh five year high in November. As the economy began to show some kind of life this year, foreign investors' interest in Japanese shares has perked up.

They ploughed 838.3 billion yen into Japanese stocks in the week through December 21, data from the Ministry of Finance showed.

So far this year, foreign investors have piled about 15 trillion yen into Japanese equities, compared with 2.13 trillion for the whole of 2012.

More gains were likely for the Japanese stocks into the New Year. The $75 billion pension fund for Japan's civil servants said late on Thursday that it has lowered its allocation to Japanese bonds and raised weightings to domestic equities in an easing of its ultraconservative investment strategy.

Japanese retail investors were also expected to be more aggressive in trading stocks next year, analysts said.

"Japanese households have a lot of cash in their assets and as inflation will speed up next year, we will see a shift from their assets in cash deposit into riskier assets. Next year we will see more active trading by individual investors," said Jun Yunoki, an equity analyst at Nomura Securities.

But as stocks trended higher, the spread between the dividend yield for the broader Topix <.TOPX> index and the yield on the benchmark 10-year Japanese government bond narrowed to 0.928 percentage point on Thursday, its lowest since September.

The Topix was down 0.2 percent to 1,277.19 on Friday morning, with volume at 29 percent of full daily average for the past 90 trading days.

Investors locked in gains on some of stellar performers, with Fast Retailing Co Ltd down 1.6 percent, Alps Electric Co Ltd off 2.1 percent and ball-bearing maker Minebea Co Ltd down 0.9 percent.

As of Thursday, Minebea had risen more than 150 percent year-to-date, while Fast Retailing, operator of casual fashion chain Uniqlo, was up more than 100 percent.

(Editing by Michael Urquhart)