* Nikkei pokes above Ichimoku cloud but mood wary
* Profit-taking, probably by retail investors, weighs
* But mid-, long-term investors still buying - analyst
* Kyorin soars after report Sawai wants to acquire it
By Elaine Lies and Masayuki Kitano
TOKYO, Sept 21 (Reuters) - Japan's Nikkei edged briefly to a seven-week intraday high on Tuesday before falling into negative territory in the face of profit-taking, with the dollar's struggles against the yen weighing on sentiment.
Mid-sized drugmaker Kyorin soared on a report that generics drug maker Sawai Pharmaceutical Co wants to acquire it while Canon climbed after a report that strong demand has prompted it to plan a new overseas inkjet printer plant.
While market players said losses would be limited by strong gains in U.S. stocks and the yen's retreat from 15-year highs against the dollar after Japan intervened last week to weaken the Japanese currency, the market was vulnerable to profit-taking.
"The intervention helped boost the Nikkei last week but fundamentally nothing's changed either in the U.S. or Japanese economy," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.
"The fact that Japan did the intervention on its own also means there are limits to the long-term impact."
The Nikkei hit a seven-week intraday high of 9,704.25 but ended down 0.3 percent or 23.98 points at 9,602.11. The broader Topix also lost 0.3 percent, to 849.94.
The Nikkei briefly edged above resistance near 9,660, which is right around the top of the cloud on daily Ichimoku charts. A clear break of that level would be a bullish sign.
But otherwise, chart signals were mixed. The Nikkei's relative strength index (RSI) stood at 61, with anything from 70 and above oversold, while its slow stochastic dipped.
"Some short-term technical indicators suggest overheating, but I think medium- and long-term investors are still buying, and this is limited losses," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
The Federal Reserve is expected to tread water at a policy-setting meeting on Tuesday with a renewed promise to keep its portfolio from shrinking but no new steps to ease U.S. monetary policy.
Market players, however, remain cautious about the outlook amid persistent worries that the yen may strengthen again, even in the wake of intervention. Japan sold an estimated 1.8 trillion yen (over $21 billion) last Wednesday, a record for a single day, to help its exporters and counter deflation.
The dollar dipped slightly against the yen, down 0.2 percent to 85.54 yen.
CAPPING GAINS
Masayuki Doshida, a market analyst at Matsui Securities, said gains in Tokyo shares may be limited due to potential selling by retail investors, who had bought Tokyo shares from April to June, even as the market fell in that period.
"When the Nikkei rises above 9,500 or so, selling on rallies tends to appear by (retail) customers who had been buyers during the slide and are carrying losses," Doshida said.
"I think that is helping put a lid on the market."
Kyorin surged 13.3 percent to 1,368 yen, while Sawai lost 2.7 percent to 7,480 yen. The Nikkei business daily said on Saturday that Sawai Pharmaceutical had sent an acquisition proposal to Kyorin and bought almost 5 percent of it.
A number of exporters shifted into negative territory in afternoon trade, with Honda Motor Co down 0.5 percent at 3,000 yen and Sony Corp down 1.5 percent at 2,637 yen.
But Canon Inc still clung to gains, closing up 1.4 percent at 3,905 yen, after saying it plans to build a 15 billion yen ($175 million) inkjet printer plant in Thailand amid soaring demand in Asia.
Shares of companies with exposure to China also dipped in response to a territorial dispute between China and Japan, said Jujiya's Okamoto.
Hitachi Construction Machinery lost 0.9 percent to 1,853 yen and Komatsu shed 1 percent to 1,923 yen.
Worries about a possible dip in the number of big-spending Chinese tourists to Japan also were likely weighing on shares of department stores such as Takashimaya, which lost 1.7 percent to 655 yen.
Trade was thin, with 1.5 billion shares changing hands on the Tokyo exchange's first section. Declining shares outnumbered advancing ones, 893 to 596. (Editing by Michael Watson)