* Toyota falls after Q1 loss, smaller annual loss forecast
* Fast Retailing declines after July sales fall
* Market likely pausing after rally, earnings season peaks
* Focus turns to U.S. jobs data on Wed, Fri
By Aiko Hayashi
TOKYO, Aug 5 (Reuters) - Japan's Nikkei average was almost flat on Wednesday, with investors taking a breather after the index set a 10-month closing high the previous day, while Toyota Motor slipped after reporting a third straight quarterly loss.
Fast Retailing dropped 2.5 percent after saying same-store sales at its Uniqlo casual clothing chain in Japan fell for the first time in nine months in July.
"The market is confined in a very tight range after such a big rally, though positive news like U.S. housing data continues to come out," said Soichiro Monji, chief strategist at Daiwa SB Investments.
"Investors now lack immediate trading factors, which have run their course with the earnings season almost out of the way after Toyota. It's hard to think the Nikkei could go above 10,500 for a while."
Market players said Toyota shares faced profit-taking in the wake of its earnings announcement and as the stock had already gained sharply, while some said its earnings were not as positive as the market had expected.
The benchmark Nikkei dipped 0.08 percent to 10,366.29, after scoring its highest close since early October on Tuesday.
Market players say the next targets for the Nikkei will be 10,500, which is psychologically important and also a target level for futures and options, and 10,800, a level last seen in October.
The broader Topix inched down 0.1 percent to 957.88.
"Still, optimism about higher share prices going forward remains intact and that is prompting investors to buy on dips and supporting the market," said Fumiyuki Nakanishi, a manager at SMBC Friend Securities.
The S&P 500 Index rose 0.3 percent on Tuesday after data showing U.S. consumers spent more in June, though partly because of rising gasoline prices, and contracts to buy used houses rose more than expected and for a fifth-straight month.
With Japan's earnings season peaking, investors will shift their focus to economic indicators to gauge the progress of recovery in the global economy.
The U.S. economy is expected to have lost 320,000 nonfarm payroll jobs in July, a hefty number but still an improvement over last month's drop of 467,000. The unemployment rate is expected to have risen to 9.6 percent. The figures will be released on Friday.
The ADP National Employment Report for July is due on Wednesday.
TOYOTA FALLS
Toyota fell 1 percent to 3,990 yen after the automaker said it slipped to its third straight quarterly loss as sales sank in Japan, Europe and the United States, though it forecast a slightly shallower annual loss.
While the global downturn is hammering automakers everywhere, Toyota's results contrasted with surprising first-quarter profits at domestic rivals Honda Motor Co and Nissan Motor Co.
On Wednesday, Honda fell 0.7 percent to 3,020 yen and Nissan declined 1.4 percent to 684 yen.
Nakanishi at SMBC Friend Securities said he thought Toyota's earnings were fairly good.
"For a conservative company like Toyota, it was a surprise to me that it actually lowered its loss forecast."
Shares of Fast Retailing fell to 11,510 yen after it said same-store sales at its Uniqlo casual clothing chain in Japan fell 4.2 percent in July, hit by unseasonably rainy weather.
Among stocks that gained, Daikyo Inc soared 12 percent to 178 yen after the condominium developer raised its interim profit forecast five-fold citing unexpectedly strong apartment sales and cost-cutting.
Some 912 million shares changed hands on the Tokyo exchange's first section, below last week's morning average of 959 million.
Advancing stocks and declining ones were roughly even, 738 to 786. (Editing by Michael Watson)