TOKYO, Sept 1 (Reuters) - Japan's Nikkei average is expected to move narrowly on Wednesday and could test a 16-month low hit last week as investors remain discouraged by the yen's continued strength after dumping shares the day before.
Investors are likely to focus on Hitachi Ltd after sources familiar with the matter said the company is planning an initial public offering of its hard-drive unit in the United States, possibly by the year-end.
Growing worries on Tuesday that U.S. indicators due out later this week could prompt dollar selling and lead to a further strengthening of the yen prompted investors to cut losses, sending the benchmark Nikkei down 3.6 percent.
The Nikkei fell to a 16-month closing low and shed 7.5 percent in August, its worst monthly performance since May, and market players said investors were likely to stay wary for a while.
"With the yen remaining strong as it is, we're unlikely to see much of a rise today as there's simply no reason to buy for now," said Yutaka Miura, a senior technical analyst at Mizuho Securities.
"But the fact that overseas shares didn't fall that much means that Tokyo is unlikely to do much more than move sideways, without a lot of direction."
The benchmark Nikkei closed at 8,824.06 on Tuesday, within sight of a 16-month low of 8,807.41 marked last week, and market players said a try of the downside around 8,800 was entirely possible.
But with the Nikkei also veering close to oversold according to some charts -- its relative strength index (RSI) was at 37, with anything from 30 and under oversold -- slides were likely to be limited, with some light buying from pension funds possible.
The Nikkei is likely to trade between 8,700 and 8,900, market players said. Nikkei futures traded in Chicago closed at 8,835, up slightly from the Osaka close of 8,800.
Below 8,800, the next target is 8,697, a 61.8 percent retracement of the Nikkei's rally from its March 2009 low to its April 2010 high.
New York shares ended flat, boosted by a raft of positive data surprises but with slides in technology shares capping overall gains.
Further weighing on U.S. stocks on Tuesday, minutes of the Federal Reserve's latest policy meeting suggested the outlook for the U.S. economy would have to deteriorate "appreciably" to spur fresh support from the central bank. ----------------------MARKET SNAPSHOT @ 2306 GMT ------------
LAST PCT CHG NET CHG S&P 500 1049.33 0.04% 0.410 USD/JPY 84.12 -0.05% -0.040 10-YR US TSY YLD 2.47 -- 0.000 SPOT GOLD 1247.4 -0.13% -1.590 US CRUDE 71.86 -0.08% -0.060 DOW JONES 10014.72 0.05% 4.99 ------------------------------------------------------------- > Wall St ends dismal month on flat note, semis slide > Yen rises, heads to 4th straight monthly gain vs dollar > US bonds gain as Fed underscores economy risks > Gold rises to two-month high above $1,250 > US oil slumps on economy, drops 8.9 pct in August
STOCKS TO WATCH
-- Sumitomo Corp
Trading company Sumitomo Corp will join a shale gas development project in the U.S. state of Pennsylvania, acquiring 30 percent concession rights to Rex Energy Corp's Marcellus shale field for around 17 billion yen ($2.02 million), the Nikkei business daily reported.
-- Nippon Steel, other steelmakers
Japanese steelmakers have reached an agreement with mining giant BHP Billiton for a 7 percent cut in coking coal prices for the three-month period ending Dec. 31, the Nikkei business daily reported. (Reporting by Elaine Lies; Editing by Michael Watson)