* Government's pessimistic comments on exports weigh
* But Nikkei touches 7-month intraday high of 10,394.22
* Resource-linked, bank, property shares gain
* Retail investor mood rises to best level since April-poll
By Antoni Slodkowski and Chikafumi Hodo
TOKYO, Dec 22 (Reuters) - Japan's Nikkei average dipped 0.2 percent on Wednesday, backing away from a seven-month intraday high hit earlier, as downbeat comments by the prime minister on the economy prompted investors to adjust positions around new levels.
But underlying sentiment in the holiday-thinned market remained strong, which helped lift the Nikkei to its highest level since May 14 at one point, reflecting general bullishness in global equities markets and a positive outlook for the Nikkei in 2011.
"Investors used Prime Minister (Naoto) Kan's comments as an excuse to offload some of their positions in the last minutes of the trade," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.
"But it wasn't a massive readjustment and the market was rather quiet today ahead of the holiday season," Kuramochi said.
The benchmark Nikkei ended the day down 0.2 percent or 24.05 points at 10,346.48, after touching a fresh seven-month high of 10,394.22.
The broader Topix index shed 0.1 percent to 905.78.
Japan's government cut its view on exports and business sentiment on Wednesday due to a slowdown in Asia's economic recovery and a persistently strong yen. It also said the economy is at a standstill and in a difficult situation with a high jobless rate.
But reflecting the improving market outlook, a Reuters poll showed Japanese retail investors' sentiment towards domestic stocks made a record improvement in December to reach its best level in eight months, amid the Nikkei's recent 13 percent rally.
Respondents to the survey said the Nikkei would advance further towards the end of March as a weaker yen would help earnings of export-oriented companies and prompt inflows from foreign investors.
One such company, Canon Inc, gained 1.9 percent after the Nikkei business daily said the camera maker is likely to beat its operating profit forecast for the financial year ending this month thanks to strong demand for high-end cameras.
"We're going to see more such announcements going into the earnings season, as the dollar/yen rate has stayed above what many exporters had predicted in their earning outlooks," said Kazuhiro Takahashi, general manager at Daiwa Capital Markets.
DOMESTIC DEMAND STOCKS GAIN
Strength in resource-related stocks in the wake of a rally in commodity prices and inflows into domestic demand-led shares, such as banks and real estate, bolstered overall sentiment to draw steady bargain-hunting, traders said.
"Sentiment is being lifted by rises in domestic demand-led stocks like banks, along with gains in resource-related shares," said Takashi Ohba, a senior strategist at Okasan Securities.
He added that the investors turned somewhat cautious as the Nikkei clawed towards 10,420.74 mark, the level where futures and options contracts expiring in December settled earlier this month.
Trading houses and other resource-related companies posted strong gains after U.S. crude futures rose above $90 per barrel on Wednesday, the highest intraday price in two weeks.
Marubeni, Japan's No.5 trading house, rose 0.9 percent to 577 yen, while second-ranked Mitsui Co Ltd rose 0.7 percent to 1,325 yen.
Although volume on the Tokyo Stock Exchange's first section picked up from the last two sessions, reaching 1.9 billion shares, it stayed below last week's average of 2.1 billion shares.
Declines in the euro the previous day due to concerns over debt problems in the euro zone weighed on shares of companies with close business ties to Europe, such as precision machinery makers. The sector's subindex fell 1 percent.
Declining issues outpaced advancing ones by about 2 to 1. (Editing by Chris Gallagher)