Nikkei slips on profit-taking but blue chips hold firm

By Elaine Lies

TOKYO (Reuters) - Japan's Nikkei stock average slipped 0.7 percent on Tuesday as investors locked in profits after Monday's three-week closing high, with Tokyo Electron Ltd and other firms that had risen hit by selling.

But Honda Motor Co and other blue-chip exporters held firm, while gains by large banks braked further slides and oil's fall below $113 yen on Monday helped boost shippers and Japan Airlines Corp.

Japanese annual wholesale price inflation jumped to 7.1 percent in July, a 27-year high and well above expectations, adding to fears that high energy and commodity costs are squeezing firms and pushing the economy into recession.

Market players were divided in their take on the data, which came out just prior to the open, with some shrugging it off while others said a negative impact was unavoidable, albeit limited.

"This shows that inflation is a bit higher than expected, and raises fears about possible pressure on company earnings," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

"But all of these price rises haven't yet been passed to consumers and it may already be factored in anyway."

The soaring wholesale inflation comes as worries grow that Japan's longest post-war recovery may have ended as exports -- the main engine of growth in the world's No.2 economy -- sputter as the global economy slows.

Trade was thin ahead of Japanese gross domestic product data due out on Wednesday, but Ushio said negative figures for this had been priced in as well.