* Nikkei sheds early gains on persisting economy concerns
* Exporters dragged lower as investors fret over stronger yen
* Shift into defensive stocks limits Nikkei's losses
By Shinichi Saoshiro
TOKYO, July 7 (Reuters) - Japan's Nikkei average dipped 0.2 percent on Tuesday, giving back earlier gains on persisting concerns about an economic recovery, with exporters dragged lower by worries over a strengthening yen.
Oil and gas developer Inpex Corp shed 1.3 percent after oil prices lost 4 percent on Monday on doubts over a potential rebound in the global economy.
"Optimism previously shown towards the economy is being scaled back and this is putting a lid on the market. Last week's U.S. employment numbers were a hint that perhaps the market had become overoptimistic," said Takahiko Murai, general manager of equities at Nozomi Securities.
Data on Thursday showed employers in the United States shed nearly half a million jobs in June with the unemployment rate jumping to 9.5 percent, the highest in nearly 26 years.
The benchmark Nikkei was down 20.94 points at 9,659.93 at the midday break. It initially rose 0.6 percent following gains on Wall Street the previous day.
The Nikkei was on track to remain below its 25-day moving average, around 9,800, for a third straight day.
The index has lost momentum after reaching an eight-month high of 10,170.82 last month.
"The market wants to gauge economic indicators and corporate results as recent gains appeared to have outpaced actual economic conditions," said Hiroichi Nishi, general manager of equity marketing at Nikko Cordial Securities.
Investors will be eyeing upcoming U.S. corporate earnings including bellwethers Alcoa and Chevron.
The broader Topix shed 0.2 percent to 910.22.
DEFENSIVES LIMIT LOSSES
Exporters slid after the dollar hit a five-week low below 95 yen the previous day. Canon Inc fell 1 percent to 3,050 yen and electronics parts maker TDK Corp lost 1.6 percent to 4,280 yen. Honda Motor Co shed 1.6 percent to 2,540 yen.
Resource-linked shares were also hurt by clouded prospects of a global economic recovery. Non-ferrous metals smelters Nippon Light Metal fell 4 percent to 97 yen and Mitsui Mining and Smelting dropped 1.7 percent to 230 yen.
The non-ferrous metals subindex fell 2.4 percent, posting the biggest drop among the subindexes.
Market players said the Nikkei's downside was limited by investors shifting funds into defensive stocks such as drugmakers, considered resilient amid unfavourable economic conditions.
Astellas Pharma Inc, Japan's second-biggest drugmaker, rose 1.5 percent to 3,370 yen and Takeda Pharmaceutical edged up 0.3 percent to 3,720 yen.
East Japan Railway rose 2.7 percent to 6,090 yen and Kao Corp, Japan's biggest maker of toiletries, edged up 0.5 percent to 2,110 yen.
Among other gainers, Asahi Breweries climbed 4 percent to 1,367 yen after the Nikkei business daily said the brewer likely beat its January-June pretax profit forecast by around 1 billion yen thanks to rising sales of no-malt beers and soft drinks.
Shares of Toyota Motor Corp dipped 0.6 percent to 3,590 yen while Isuzu Motors Ltd lost 5.2 percent to 147 yen, after the Nikkei business daily said Toyota has decided to scrap plans to develop diesel engines with Isuzu in what is likely to be the first of a series of restructuring measures under new management.
Inpex lost 1.3 percent to 704,000 yen.
Trade picked up on the Tokyo exchange's first section, with 966 million shares changing hands, compared with last week's morning average of 955 million.
Advancing stocks outnumbered declining ones 800 to 772. (Editing by Chris Gallagher)