* Nikkei sheds modest morning session gain

* Shippers down, Nippon Yusen falls on dilution worries

* Carmakers up after Goldman raises rating on Fuji Heavy

* Talk of Nikkei futures selling, JGB futures buying by CTAs

By Masayuki Kitano

TOKYO, Nov 12 (Reuters) - Japan's Nikkei share average fell 0.7 percent on Thursday with shipping firm Nippon Yusen (9101.T: Quote, Profile, Research) falling on dilution worries related to its capital-raising plan, while Honda (7267.T: Quote, Profile, Research) and other carmakers rose after a positive brokerage report.

FamilyMart Co (8028.T: Quote, Profile, Research), Japan's third-largest convenience store operator, rose 1.6 percent after a source familiar with the matter said the company was in talks to buy smaller rival am/pm Japan Co. [ID:nBNG460546]

The Nikkei had edged higher earlier in the day, buoyed by gains on Wall Street on the view that the global economic recovery is looking a little more certain, but later trimmed those gains to turn negative.

The Nikkei's decline in the afternoon was driven by flows in Nikkei futures JNIc1, said Hideki Horikawa, a senior adviser at Himawari Securities Inc's investment advisory division.