(Reuters) - Japan's Nikkei averageretreated from a seven-month high Tuesday as traderstook profits ahead of a key selling level, while the chip sectorsuffered losses after Elpida Memory Inc said it willseek bankruptcy protection.Elpida, Japan's last remaining maker of PC chips, filed forprotection from creditors after the bell on Monday with $5.6billion in debt after failing to find partners to help itsrevival.The company's bankruptcy filing, the biggest by a Japanesemanufacturer, triggered a broad sell-off in chip-related shares,with Advantest Corp, Shin-Etsu Chemical Co andTokyo Electron Ltd falling between 1.2 and 5.9 percent.The benchmark Nikkei slipped 0.6 percent to 9,579.28by the midday trading break after it touched a fresh seven-monthhigh of 9,736.11 in the previous session. The broader Topixindex eased 0.7 percent to 829.39.Elpida was notionally quoted at a lifetime low of254 yen, down by its daily limit of 80 yen or 24 percent fromthe previous session.Market participants said Elpida's bankruptcy had a limitedimpact on the broader market but was negative for investorsentiment.The overall impact is limited but the news is bad formarket sentiment, said Toshiyuki Kanayama, a senior marketanalyst at Monex Inc. There was an expectation that the companywould be able to find a partner, and even the possibility of abankruptcy was seen as an event some time in the future, so thiswas certainly surprising.One stock benefiting from Elpida's failure was Tomen DevicesCorp, the largest marketer of Samsung Electronics CoLtd products in Japan, which eked out a 0.5 percentgain.Trading volume on the Nikkei was at 75.6 percent of its90-day daily average.

MARKET CORRECTIONThe market was certainly overheated so this is a naturalcorrection. Domestic investors are prompted to take profitsright above the current levels ... There is no reason at thismoment to buy higher, said Yutaka Miura, a senior technicalanalyst at Mizuho Securities.Miura said that from a technical perspective the Nikkei wasripe for a correction and could edge lower by the end of theweek.The benchmark Nikkei was deep in overbought territory, withthe 14-day relative strength index at 75. Seventy or above isconsidered overbought.The dollar traded at 80.30 yen, off its nine-monthpeak of 81.61 yen hit on Monday, also prompting selling ofexporter stocks that had been bought recently on hopes for aweaker yen.Toyota Motor Corp fell 1 percent, Canon Inclost 1.2 percent, and Panasonic Corp was 2.1percent lower.Market participants also said buying back of stocks such asfinancials and cyclicals that were heavily sold last year hadmostly run its course.The banking sector eased 0.5 percent with NomuraHoldings, Japan's top investment bank, falling 1.1percent.Shippers, which had vaulted more 23 percent thismonth, were the worst sectoral performer on the Tokyo exchangeon Tuesday, falling 2.9 percent Denmark's A.P. Moller-Maersk A/Swarned that 2012 group results would see a furtherdecline as it is hit by losses in container shipping.Nippon Yusen KK, Kawasaki Kisen Kaisha Ltdand Mitsui O.S.K. Lines Ltd fell between 2.2 and 3.6percent.Buying of financials and shippers that had been sold offheavily last year is nearing its end ... Especially forshippers, the reality of the business environment is still verynegative and the world economy is not going to improveaggressively, said Kenichi Hirano, operating officer atTachibana Securities.Kansai Electric Power Co topped the Topix core 30list as the biggest percentage gainer, adding 1.7percent to 1,347 yen after Nomura hiked its target price.Kansai Electric wants to restart at least two of its 11reactors, now all offline due to safety fears following theFukushima radiation crisis, after the nation's nuclear watchdogsaid this month the units had passed stress tests -- computersimulations evaluating reactions to severe events.

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