Japan stocks steady, weak China data offset gains after Topix hits 2-yr high

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* Topix hits highest since Aug 2015

* Foreign short-covering seems to have run its course – analyst

* Profit-taking in recent gainers limit gains

TOKYO, Sept 14 (Reuters) – Japanese stocks were steady in choppy trade on Thursday morning, as weak Chinese economic data offset early gains when the broader Topix index hit the highest level in more than two years.

The Topix Stock Price Index .TOPX rose 0.3 percent to 1,642.56 in early deals, the best level since August 2015, before trimming the gains to be up 0.1 percent at 1,638.40 by the midmorning break.

The Nikkei .N225 was flat at 19,873.62.

Chinese data released earlier showed factory output in the world’s second-biggest economy grew 6.0 percent in August on-year, while fixed-asset investment expanded 7.8 percent in the first eight months, both well below economists’ forecasts. China is one of Japan’s major export markets.

Market participants said that since the Nikkei hit a four-month low on Sept. 8, foreign investors and hedge funds have started covering their short positions as geopolitical tensions on the Korean peninsula ebbed.

But that has changed with the Nikkei recovering and hitting a one-month high on Wednesday.

The persistence of bellicose rhetoric from North Korea seen over recent weeks didn’t appear to impact trading in Tokyo.

“Foreign investors’ short-covering seems to have run its course, while China’s weak data soured market sentiment,” said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

In morning trade stocks such as Toray Industries3402.T , Orix Corp8591.T , Toyota Motor Corp7203.T and Tokyo Electron Ltd8035.T boosted the Topix index. They were up 3.6 percent, 2.0 percent, 0.3 percent and 1.7 percent, respectively.

Moving in the opposite direction, recent gainers including insurance stocks and some exporters lost ground.

MS&AD Insurance8725.T fell 0.4 percent, Sony Corp6758.T dropped 2.9 percent and Hitachi Ltd6501.T shed 0.8 percent.

Traders said that investors are looking ahead to U.S. consumer inflation data later in the day for clues on the possible timing of the U.S. Federal Reserve’s next rate rise.

(Editing by Shri Navaratnam) ((ayai.tomisawa@thomsonreuters.com; 81-3-6441-1875; Reuters Messaging: ayai.tomisawa.thomsonreuters.com@reuters.net))


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