* Sony drops after report of Ericsson stake purchase plan
* Ryohin Keikaku plunges after earnings
By Lisa Twaronite
TOKYO, Oct 7 (Reuters) - The Nikkei stock average climbed on Friday, on track for its second day of gains on hopes that a plan to support Europe's financial sector is making progress, but market participants said the upside was limited ahead of a U.S. non-farm payrolls report later in the day.
Sony Corp dropped 1 percent to 1,455 yen, after
Nomura Holdings Inc. cut the consumer-electronics maker's rating
to 'neutral' from 'buy'. Sony was the fourth-heaviest traded
share by turnover, with its stock also pressured by a report
that the company is nearing a deal to buy Telefon AB LM
Ericsson's
The European Union said that it would present a plan for a coordinated recapitalisation of banks by member states, and the European Central Bank said it was ready to buy bonds to provide longer-term cheap money for European lenders in need of funding. .
"Even though the Japanese market is up today, it's mostly just reacting to overseas developments, like relief that Europe's situation might be improving, so the overall market here can still be called sluggish," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"No one wants to take a big position ahead of the U.S. jobs report later in case there is a downside surprise, and the market is also in a 'wait and see' mode to see what happens with the European plan to recapitalise banks and steps to prevent Greece from defaulting."
New claims for U.S. unemployment benefits rose slightly less than expected last week, hinting at an improved labour market a day before the closely watched non-farm payrolls report.
The Nikkei rose 1 percent to 8,604.71, retaking the 8,600 level for the first time since Sept. 30 and putting it in sight of resistance at its 25-day moving average of 8,657. The broader Topix added 1.1 percent to 744.65.
Shares of Ryohin Keikaku fell 8.8 percent to 3,910, their biggest single-day drop since March 15, after the retailer posted first-half earnings that suggested it was facing margin pressures. (Additional reporting by Vikram Subhedar; Editing by Joseph Radford)