Nikkei likely to drift lower, eyes on China

TOKYO, Jan 21 (Reuters) - Japan's Nikkei average is likely to drift lower on Thursday, with investors keeping an eye on other markets' reaction to news that Chinese authorities ordered some major banks to curb their lending over the rest of the month. U.S. stocks slid on Wednesday and the Dow suffered its worst drop of 2010 due to fears that these curbs might jeopardize the global economic recover.

Analysts said investors could adopt a wait-and-see attitude ahead of the opening of Chinese share markets and economic data due out later in the morning, including GDP data, but that the bank lending issue itself would have only limited impact.

"A similar thing happened before, with markets getting nervous over the potential economic impact, but I think it's highly unlikely that something like this will really cool China's economy so much that it will have a bad impact on global growth, "said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities. "Still, investors may stay on the sidelines a bit until Shanghai opens."

Resource shares are likely to slip a bit after recent gains and on concern about China, while exporters could slip a bit after the yen gained some ground against the euro after worries about Greece's ability to finance its deficit pushed the euro to a ive-month low against the dollar. [USD/]

But the dollar was holding steady against the yen at 91.27 yen JPY=. Investors fret about a stronger yen because it eats into exporter profits when repatriated.

The benchmark Nikkei .N225 is likely to move between 10,600 and 10,800, market players said. Support will be solid around 10,600, just a little above the Nikkei's 25-day moving average, Yamagishi said. In a sign that stocks may open slightly ower, Nikkei futures traded in Chicago 2NKc1 closed at 10,690, down 0.2 percent from
the Osaka close JNIc1.

----------------------MARKET SNAPSHOT @ 2309 GMT ------------

INSTRUMENT LAST PCT CHG NET CHG

S&P 500 .SPX 1138.04 -1.06% -12.190

USD/JPY JPY= 91.24 0.02% 0.020

10-YR US TSY YLD US10YT=RR 3.6532 -- 0.000

SPOT GOLD XAU= 1112.15 0.09% 1.050

US CRUDE CLc1 77.65 -0.12% -0.090

DOW JONES .DJI 10603.15 -1.14% -122.28

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> Wall St drops on China; IBM; eBay jumps late [.N]

> Euro hits 5-mo low vs dlr; China hurts risk appetite [USD/]

> Bonds do better on battered stocks [US/]

> Gold hits two-week low on dollar rally, China [GOL/]

> Oil falls below $78 on equities, China loans [O/R]