Nikkei slips from one-month high; Sharp rises

* Steelmakers fall after U.S. AK Steel sees soft profit

* Sharp outperforms; Taiwan's Hon Hai plans to buy more
shares

By Dominic Lau

TOKYO, June 19 (Reuters) - Japan's Nikkei share average
pulled back from a one-month high on Tuesday as initial
enthusiasm over a victory for pro-bailout parties in Greece gave
way to resurgent concerns over Spain and its banking sector.

The Nikkei slipped 0.3 percent to 8,698.60 after rallying
1.8 percent on Monday to hit its highest closing level since May
22.

"Yesterday was more short-covering than anything else. There
is no doubt that Greek results over the weekend took some risk
off the market ... but what you saw overnight was a return to an
emphasis on the challenging situation in government bond markets
in the peripheries, mostly around Spain," said a senior dealer
at a foreign bank.

"Liquidity is very light, so the market is very jumpy. I
still remain convinced that the risk in equity markets is
probably to the upside mostly because people don't own it."

He said domestic retail investors were buying and hedge
funds were also picking up some risk assets, although long-only
funds were sellers.

Spanish bond yields hit a new euro-era high above 7 percent
on Monday, with bad loans at banks in Spain climbing to 8.72
percent of their outstanding portfolios in April, the highest
level since April 1994, Bank of Spain data showed on Monday.
That is up from 8.37 percent a month earlier.

The surge in borrowing costs threatens Spain's ability to
fund itself and raises speculation the country may need a
full-blown bailout. Greece, Ireland and Portugal were forced to
seek international bailouts soon after their 10-year bond yields
climbed above 7 percent.

Concerns over the deepening euro zone debt crisis and
slowing growth in the United States and China have weighed on
Japanese equities, with the Nikkei down 13.7 percent this
quarter after rallying more than 19 percent in January-March to
log its best first quarter performance in 24 years.

"Just before the Greek election, I increased my long
exposure. Now I am on the sidelines ... I am keeping my eyes on
the FOMC and political issues happening this week," said Yasuo
Sakuma, portfolio manager at Bayview Asset Management.

Sakuma added he had raised his exposure to megabanks and
insurers as well as the raw materials sector.

The broader Topix was flat at 739.04 on Tuesday.

Trading volume on the main board after the morning session
was thin, at 33 percent of its full daily average for the past
90 days.

The Topix carried a 12-month forward price-to-earnings ratio
of 10.7, up from a 43-month low of 10.4 hit last week, data from
Thomson Reuters Datastream showed.

LOOKING SHARP

Sharp Corp outperformed, up 4.4 percent after Hon
Hai Precision Industry, the main supplier to Apple Inc
, said it is in talks with Sharp about increasing its
stake as it bets on the Japanese firm's technology to give it a
boost in the cut-throat display panel business.

Steelmakers were under pressure after U.S. peer AK Steel
Holdings Corp forecast second-quarter profit that fell
short of analysts' expectations and said volatility in the
market and the recent drop in steel prices prevented it from
issuing full-year guidance.

Osaka Steel Co Ltd, Mitsubishi Steel Mfg Co Ltd
and JFE Holdings Inc were down between 1.3 and
3 percent.

Tokyo Steel Manufacturing Co Ltd shed 3.8 percent,
hurt by its plan to drop prices for all contracts signed in
July.

Fast Retailing also underperformed the broader
market, dropping 1.2 percent after JPMorgan cut its price
target, saying domestic sales at the Uniqlo fashion chain could
undershoot expectations.

(Editing by Joseph Radford)