(Deletes extraneous word in paragraph 9)
* Post-election rally dissipates quickly on strong yen
* Short-covering, strong output data earlier buoy market
* Daiichi Sankyo loses ground after news of strong rival drug
By Aiko Hayashi and Elaine Lies
TOKYO, Aug 31 (Reuters) - Japan's Nikkei average edged lower on Monday as a stronger yen sent shares of exporters lower, erasing earlier gains to an 11-month high after an election win by the opposition.
Sunday's landslide victory for the Democratic Party, led by Yukio Hatoyama, ends a half-century of almost unbroken rule by the Liberal Democratic Party and breaks a deadlock in parliament. [ID:nPOLJP]
In active trade, the benchmark Nikkei <.N225> dipped 0.4 percent to 10,497.19, after gaining more than 2 percent at one point to 10,767.00, its highest level since Oct. 6. Market players said the gain had been led by buying of Nikkei futures, sparking short-covering.
"After a spatter of buying at the open, this may be it for today," said Kenichi Hirano, operating officer at Tachibana Securities.
Market players said there was little sign of foreign investors' presence in the market and some were selling on the fact that the election was over.
"If foreign investors come in decisively in expectations of Democratic policies there's likely to be long-term support," Hirano said.
For a graphic on foreign net buying of Japanese shares and the Nikkei, see http://r.reuters.com/pup83d
The broader Topix <.TOPX> fell 0.3 percent to 966.09. Nikkei
September futures
Among big stocks losing ground, Daiichi Sankyo <4568.T> slid
2.2 percent to 2,000 yen after some researchers said
AstraZeneca's
The yen rose to its highest in seven weeks against the dollar on Monday, boosted by the end of election uncertainty and then by dollar sell orders.
The dollar fell 1 percent 92.70 per dollar
PIGEON FLIES HIGHER
Advantest Corp <6857.T>, a chip-tester maker, and other
chip-linked shares lost ground. They earlier climbed after chip
maker Intel
Advantest was flat at 2,320 yen, after earlier climbing as much as 4.1 percent, and Tokyo Electron Ltd <8035.T> inched down 0.4 percent to 5,070 yen.
Automakers also lost steam, with Honda Motor Co <7267.T> shedding 1.7 percent to 2,940 yen.
Among stocks that gained, CSK Holdings Corp <9737.T> shot up 10.1 percent to 456 yen after the Nikkei business daily reported the firm's lenders are considering plans to give the struggling information services firm a financial aid package of around 30 billion yen.
Shares of Pigeon Corp <7956.T> climbed 2.7 percent to 3,850 yen, trading near their lifetime intraday high, after the baby care products maker lifted its annual operating profit forecast by 7 percent to 4.7 billion yen.
It also got a boost amid hopes that a proposal by the Democratic Party to issue monthly child allowances would bolster the company's sales.
Production data supported the market earlier. Industrial output rose 1.9 percent in July to increase for a fifth straight month as exports recover on the back of stimulus spending around the world, above the 1.4 percent forecast by economists. [ID:nT334615]
Some 1.1 billion shares changed hands on the Tokyo exchange's first section, above last week's morning average of 908 million.
Declining stocks outnumbered advancing ones, 857 to 649. (Editing by Edwina Gibbs)