Nikkei edges down, traders worry 1-mth rally petering out

* Potential ECB rate cut may be negative for Japan

* Reconstruction-linked stocks in favour

* Benchmark retreating ahead of 75-day moving average

By Sophie Knight

TOKYO, July 5 (Reuters) - Japan's Nikkei share average edged
lower on Thursday, with traders saying they believed a one-month
rally that had taken the benchmark to a 2-month high and close
to resistance at its 75-day moving average was running out of
steam.

The Nikkei has risen almost 10 percent over the past month,
with an extra boost coming from last Friday's EU decision to
help the region's banking sector.

That and expectations for the European Central Bank to cut
rates later in the day have underpinned risk appetite, although
some analysts believe an ECB rate cut could be a double-edged
sword for Japanese exporters and the Nikkei.

"The ECB is likely to cut rates today - but if that leads to
a fall in the euro against the yen, that would not be good for
Japanese stocks," said Yutaka Miura, senior technical analyst at
Mizuho Securities.

In light trade, the Nikkei fell 0.3 percent to
9,079.80, coming off a two-month closing high marked on
Wednesday and retreating ahead of its 75-day moving average of
9,158.

Analysts worry that Japanese exporters' profits could be
squeezed if the euro falls further against the yen. The euro hit
an 11-1/2-year low of 95.59 yen last month and now trades around
99.8 yen.

Investors are also expecting soft U.S. jobs data at the
weekend, which would fan fears of slowing growth in the world's
biggest economy.

Some analysts said the Nikkei was set to peak out as soon as
next week, adding that there is little hope in the near-term
that it will reach its March peak of 10,255.

"I feel this short-covering rally will have run its course
soon... In the past year, we've seen a repeated pattern where
markets rally on European policymakers' rough agreement and then
fall again as they find out disagreement over details," said
Norihiro Fujito, senior investment strategist at Mitsubishi UFJ
Morgan Stanley.

The broader Topix index dropped 0.3 percent to
776.37 in relatively light trade, at just 75 percent of its
90-day average volume.

Reconstruction-linked stocks were in favour, with
construction machinery maker Komatsu Ltd rising 3.5
percent while Daiki Ataka Engineering Co Ltd, a company
that has developed technology to decontaminate radioactive ash,
soared 23 percent.

Nikon rose 1.4 percent to 2,539 yen, hitting a
four-year high of 2,559 yen at one stage, after Daiwa Securities
raised its rating to 'outperform' from 'neutral', citing strong
growth in SLR digital camera sales.

Separately, Japan's business daily Nikkei also reported that
the company's camera business was likely to see its annual
operating profit increase 48 percent in the year to March.

(Additional reporting by Hideyuki Sano; Editing by Edwina
Gibbs)