* Nikkei loses traction after brushing 2-1/2-mth high
* Window dressing before FY-end seen capping stocks
* Yen’s weakening shores up exporter automakers
By Shinichi Saoshiro
TOKYO, Feb 26 (Reuters) - Japan’s Nikkei share average closed slightly weaker on Tuesday, having touched its highest levels since mid-December earlier in the day before a decline in Asian stocks and selling pressure ahead of the fiscal year-end in March forced a retreat.
The Nikkei ended the day down 0.37 percent at 21,449.39 after touching a high of 21,610.88, a level unseen since mid-December.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5 percent on Tuesday as its recent run to a five-month high ran out of steam.
“Receding trade tensions and hopes for dovish Fed policy was of help to Japanese stocks but these are mostly eternal factors, not indigenous ones. Selling generated by window-dressing towards the end of the fiscal year is capping the market,” said Takashi Hiroki, chief strategist at Monex Securities.
“Selling pressure, however, could ease if the 21,700 level on the Nikkei is reached. That level represents a 50 percent reversal from the recent plunge and if cleared, short sellers may be forced to reverse their positions.”
The 21,700 mark for the Nikkei lies halfway between a 27-year peak of 24,448 scaled in October and a 20-month trough of 18,948 plumbed in December.
Exporter shares such as automakers rose following the recent weakening by the yen against the dollar. Mazda Motor Corp climbed 0.3 percent, Honda Motor Co added 0.1 percent and Nissan Motor Co rose 0.5 percent.
Petroleum and natural gas developer Inpex Corp fell 3.8 percent and refiners Showa Shell Sekiyu KK and Cosmo Energy Holdings Co were down 2 percent and 2.3 percent, respectively, following a steep drop in crude prices.
Defensive shares such a utilities and healthcare performed well, with Tokyo Electric Power Co rising 1.1 percent and drugmaker Daiichi Sankyo Co gaining 2.7 percent.
Izutsuya Co surged 11 percent after the operator of department stores raised its operating profit forecast for the year through February 2019 to 1.3 billion yen ($11.72 million) from 1.1 billion yen.
Of the 33 subsectors at the Tokyo Stock Exchange 23 declined, led by mining.
The broader Topix shed 0.23 percent to 1,617.20.
$1 = 110.9500 yen Editing by Simon Cameron-Moore