* Profit-taking pressures market after 10-mth closing high
* Eyes on Japan's Aug 30 election, post-election politics
By Aiko Hayashi
TOKYO, Aug 27 (Reuters) - Japan's Nikkei average fell 1.6 percent on Thursday after hitting a 10-month closing high the previous day, with exporters such as Canon Inc losing steam, while trade remained cautious ahead of Sunday's election.
Market players said investors have factored in a big win by Japan's opposition Democratic Party in the Aug. 30 national election and their focus is now shifting to the post-election situation, including who will be the next finance and economy ministers.
"There's a sense of buying fatigue among investors globally and that is leading to profit-taking," said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.
"The external environment that had helped produce gains in the market has started showing signs of waning. The U.S. market could be entering a correction phase and the direction of Chinese stocks remains uncertain."
In moderate trade, the benchmark Nikkei shed 168.72 points to 10,470.99, after rising 1.4 percent the previous day to score its highest close since Oct. 3.
The broader Topix declined 1.5 percent to 960.54.
The Democrats lead Prime Minister Taro Aso's Liberal Democratic Party in newspaper polls ahead of the election. An opposition victory would end more than five decades of almost continuous rule by the LDP and raise the chances of breaking a stalemate in a divided parliament.
"The market has factored in a landslide victory by the Democratic Party, but it wants to wait and see what the party will do after the election," said Hiroichi Nishi, general manager at Nikko Cordial Securities.
EXPORTERS WEIGH
Exporters fell, with Canon, the world's largest digital camera maker, sliding 2.2 percent to 3,620 yen.
Kyocera Corp declined 2.7 percent to 7,520 yen and TDK Corp shed 2.7 percent to 5,410 yen.
Tokuyama Corp, Japan's biggest polysilicon maker, tumbled 9.3 percent to 662 yen after it said it plans to issue 65 million shares in a public offering and an additional 9 million shares in an overallotment option at the end of September, sparking dilution concerns.
Nippon Sheet Glass dropped 7.8 percent to 332 yen after Stuart Chambers said he will step down as chief executive of the company to spend more time with his family, after a stint of a little more than a year as one of the few foreigners to head a Japanese firm.
Morgan Stanley lowered its rating on the company to "equal-weight" from "overweight," citing the uncertainty caused by the resignation in the short term.
Dainippon Sumitomo Pharma Co climbed 2.7 percent to 1,007 yen after the company said its experimental schizophrenia drug lurasidone was significantly better than a placebo in a pivotal late-stage clinical trial.
Temporary staffing group Pasona surged 7.6 percent, or by its daily limit of 5,000 yen, to 70,800 yen after saying on Wednesday that it was appointing Heizo Takenaka, an economist and former Japanese cabinet minister, as chairman of its board.
Some 995 million shares changed hands on the Tokyo exchange's first section, slightly above last week's morning average of 972 million.
Declining stocks outnumbered advancing ones by about 6 to 1. (Editing by Michael Watson)