TOKYO, Feb 5 (Reuters) - Japan's Nikkei share average

reversed early gains to inch lower on Wednesday, as escalating

bets on the Bank of Japan's interest rate hike and a stronger

yen dampened sentiment.

The Nikkei had slipped 0.18% to 38,727.19 by the

midday break after opening higher and rising as much as 0.8%

tracking U.S. equities' overnight gains.

"Market fundamental was not weak but short-term investors

sold Nikkei futures as the yen strengthened, which pushed the

Nikkei index lower," Yusuke Sakai, a senior trader at T&D Asset

Management, said.

The yen rose 0.6% in the Asian session to its

highest since mid-December 2024.

A stronger Japanese currency tends to hurt exporters' shares

as it decreases the value of overseas profits in yen terms when

firms repatriate them to Japan.

Japanese government bond (JGB) yields hit new multi-year

highs after government data showed a rise in wages, a key gauge

for the central bank's monetary policy.

"The wage data and a stronger yen changed the course of the

Nikkei. Both are negative to local equities," said Shuutarou

Yasuda, a market analyst at Tokai Tokyo Intelligence Laboratory.

In a sign of the market's firmness, of the more than 1,600

stocks trading on the Tokyo Stock Exchange's prime market, 59%

rose, 36% fell and 3% traded flat.

The broader Topix was unchanged at 2,737.99,

supported by a 11% surge in Panasonic Holdings ( PCRFF ).

Nissan Motor ( NSANF ) erased most of its early gains and

ended the midday session 1.55% higher, after a report said the

automaker and rival Honda ( HMC ) might call off merger talks.

Department store operator Isetan Mitsukoshi Holdings ( IMHDF )

fell 7% to become the worst percentage loser on the

Nikkei.