* Nikkei down 0.4 percent but up 9.6 pct so far in November
* On track for biggest monthly rise in nearly a year
* Profit-taking, worries over euro zone encourage selling
* Yen's two-month low vs dollar lends support
By Antoni Slodkowski
TOKYO, Nov 30 (Reuters) - Japan's Nikkei stock average on Tuesday edged away from a five-month closing high, with investors taking profits on the benchmark's rally of almost 10 percent this month while cautious about taking new positions amid European debt concerns.
Worries that Europe's credit crisis will spread to Portugal and Spain despite a weekend bailout of Ireland weighed on riskier assets, sending Wall Street lower while boosting U.S. 30-year Treasury bonds and spurred safe-haven buying of gold.
But market players said that in general Tokyo stocks were likely to retain their positive tone, helped by recent weakness in the yen which hit a two-month low against the dollar on Monday.
"It doesn't feel like a very deep fall for now, it's a small correction considering that the volume is low and the market lacks energy as it awaits economic data due later in the week," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.
"The Tokyo market isn't that worried about European credit problems of themselves, but looks at how these problems can affect the U.S. economy and monetary policy," Yamashita said.
Many other Asian stock markets were also higher on Tuesday, suggesting that the euro zone debt problems were having a limited impact.
By the midday break, the Nikkei was down 0.4 percent or 41.53 points at 10,084.46 in light trade, after hitting a five-month closing high on Monday.
The broader Topix index shed 0.2 percent to 873.23.
Foreigners have been shifting funds back to lagging Tokyo equities after U.S. monetary easing lifted expectations of more liquidity in financial markets.
"Short-covering by hedge funds appears to be continuing, though it has lost momentum," said Kenichi Hirano, operating officer at Tachibana Securities.
"Still, moves like this by overseas hedge funds will likely continue into the new year as they try to bring Japanese stocks back to neutral in their portfolio after having overly shorted them up to now."
Shinkin Asset's Yamashita said strong U.S employment figures and robust and strong sales during the Christmas shopping season would likely spur more buying of Japanese equities.
Market players have said that if the Nikkei can hold above 10,000 in the near term that would encourage domestic retail investors to enter the market and boost volume which has been thin recently, which would set the stage for further gains.
Trading volume on Tuesday was thin, with just 0.7 billion shares changing hands on the Tokyo exchange's first section, on track to come in well below the previous day's volume of 1.7 billion shares.
Analysts also said that investors were also coming round to the view that Japanese automakers and other exporters were quite resilient to a strong yen and this was also prompting new money to flow into the Tokyo market. (Additional reporting by Aiko Hayashi; Editing by Edwina Gibbs)