* Investors eye Japanese, U.S. earnings this week
* Retail sector in focus, especially Fast Retailing
* Banks weaken on euro-zone debt crisis worry
* Volume one of the lowest in 2011 amid economic jitters
* Elpida tumbles on share issuance news
By Antoni Slodkowski
TOKYO, July 11 (Reuters) - The Nikkei average fell on profit-taking on Monday after three weeks of gains, hurt by weak U.S. and Chinese economic data, but it held the 10,000 line as investors avoided building large positions with the U.S. corporate earnings season starting.
Shares of laggard financials led decliners ahead of an emergency meeting of top officials dealing with euro-zone debt, reflecting concern that the crisis could spread to Italy, with banks tracking losses made by their Italian and Wall Street peers on Friday.
The market avoided any broad sell-off in the Nikkei, though it is still down 3.5 percent since the March 11 earthquake, with some investors saying inflation in China may have passed its peak and others awaiting the start if U.S. corporate earnings reports this week.
"Many people still expect fairly strong U.S. earnings despite poor jobs data as U.S. firms restructure and boost growth without taking on new employees," said Yuuki Sakurai, CEO and president of Fukoku Capital Management in Tokyo.
"So even if the economy improves, I don't think we can expect American companies to start employing more people," said Sakurai.
The benchmark Nikkei closed down 0.7 percent at 10,069.53, while the broader Topix shed 0.5 percent to 870.16, outperforming Asia-Pacific shares outside Japan , which fell more than 1 percent.
With traders pondering their next move, volume faltered to one of the lowest levels this year with 1.51 billion shares changing hands on the first section, below the last week's average of 1.83 billion.
Losses on the Nikkei were limited as investors covered short positions in utilities, pushing the electric and gas subindex up 1 percent after the government said Japan's idled nuclear reactors could resume operations if they pass the first stage of two-step post-Fukushima safety checks.
GETTING ATTENTION
"While there are still uncertainties for the global economy's recovery speed, stocks such as retailers that reflect domestic demand are gaining attention," said Hiroyuki Fukunaga, chief executive of Investrust.
Fast Retailing , which operates the Uniqlo casual-clothing chain and is expected to benefit from demand for light summer clothing as the nation strives to cut down on power use during the summer heat, added 2 percent to 13,550 yen.
The firm, which reports its March-May earnings on Thursday, has outperformed the Nikkei since the earthquake, gaining 7.4 percent while the index has shed 3.5 percent.
Rival Ryohin Keikaku , the operator of Muji stores, jumped 6.9 percent to 4,185 yen after hiking its earnings outlook for the current business year citing a quicker-than-expected recovery in sales after the March disaster.
Thomson Reuters Starmine showed the stock is trading at a 26 percent discount to its peers, with its price-to-book ratio at 1.2, below its 10-year historical median of 2.0 and the average PBR for its peers is 1.9.
Investrust's Fukunaga said retail sales are being helped by a campaign dubbed "Super Cool Biz" encouraging male office workers to shed jackets and ties to cut use of air-conditioning.
The U.S. earnings season starts with aluminium producer Alcoa Inc reporting on Monday. S&P 500 components' earnings expected to have increased an average of 7.3 percent in the second quarter from a year earlier, down from first-quarter growth of 18.9 percent, Thomson Reuters data showed.
But the number could jump if most companies beat analysts' forecasts. Early estimates for first-quarter profit growth were at about 13 percent.
Mitsubishi UFJ Financial Group , Japan's largest bank by assets, fell 1.5 percent to 409 yen, while Sumitomo Mitsui Financial Group shed 1.9 percent to 2,520 yen. They were among the most actively traded stocks on the main board.
Japanese banks still trade at valuations near or below historic lows, but nevertheless remain one of the most severely underperforming sectors since the March 11 events, down 10 percent compared with pre-quake levels.
Elpida Memory , the world's No.3 maker of DRAM memory, tumbled 13.3 percent to 787 yen after three sources close to the matter told Reuters the company plans to raise 80 billion yen ($992 million) by issuing new shares and convertible bonds.
U.S. non-farm payrolls rose by only 18,000 jobs in June, well below expectations and at odds with encouraging labour market numbers earlier in the week.
On Saturday, data showed annual inflation in China accelerated to a three-year high in June with the consumer price index up 6.4 percent from a year earlier, slightly above analysts' expectations. ($1 = 80.640 Japanese Yen) (Additional reporting by Ayai Tomisawa; Editing by Michael Watson)