UPDATE: Nikkei dragged toward 9,000 on Greek fears

Sheds 1.2% on buzz Greece may reject bailout deal, exit euro. Topix loses 1.1%

Japan's Nikkei share average fell 1.2% in Wednesday's morning session as diminished risk appetite sent the benchmark index down to 9,072.2, just above its 200-day moving average of 9,058.1. The broader Topix index fell 1.1% to 767.8.

Market participants were wary after Greece's leftist candidate for prime minister, Alexis Tsipras, said bailouts must be rejected for a new coalition to be formed after Sunday's election, which would threaten Europe's fiscal health.

"Austerity won't help the economic situation with unemployment rising in Europe, but investors are concerned that the austerity pact engineered by Sarkozy and Merkel could crumble," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.

"No one can see a way out of this situation, and unless European leaders come to an agreement at the next G8 meeting, the market is going to remain on edge."

Gree Inc, Japan's leading social gaming site, also weighed on the market as the heaviest traded stock by turnover, sliding 5.6% t o add to sharp losses incurred since a weekend report that Japan's regulatory agency could outlaw online games with gambling aspects.

Earnings season provided investors an incentive to cherry-pick stocks, with Toshiba putting on 1.3% after it forecast a 300 billion yen operating profit for the current financial year.

Panasonic Corp was also spurred on by 3% after the Nikkei business daily reported that the company could forecast a net profit of around 50 billion yen for the year ending March 2013.

NTT Data Corp fared less well, sagging 9.9% after the IT services company said its operating profit would likely come in at 85 billion yen this fiscal year, below the market consensus of more than 91 billion yen.

Market analysts say the 60% of 83 Nikkei companies that have so far beaten market expectations for January-March earnings could help propel the Nikkei benchmark back up towards 10,000 by mid-June.

But concerns about instability in the euro zone, as well as fears the US recovery is faltering and growth in China is slowing, have dragged the index down 10% i n the second quarter after it rallied more than 19% in the first.

However, some analysts were optimistic that investor sentiment could improve if consumer demand grows over the summer.

"Construction and steel companies involved in the rebuilding will be worth watching," said Nakanishi of SMBC Friend Securities. "The economy could also get a boost from consumption of 'cool biz' products if we see energy shortages this summer."