* 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 0.4 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 1.7 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 fell 40.04 points to 9,640.83. It initially rose 0.6 percent following gains on Wall Street the previous day.
The broader Topix shed 0.4 percent to 909.19.
Exporters slid after the dollar hit a five-week low below 95 yen the previous day. Canon Inc fell 1.3 percent to 3,040 yen and electronics parts maker TDK Corp lost 2.3 percent to 4,250 yen. Honda Motor Co shed 1.6 percent to 2,540 yen.
The Nikkei's downside was limited by investors' opting to shift funds into defensive stocks such as drugmakers, market players said.
Astellas Pharma Inc, Japan's second-biggest drugmaker, rose 1.8 percent to 3,380 yen and Takeda Pharmaceutical edged up 0.3 percent to 3,720 yen.
Shares of Toyota Motor Corp dipped 0.6 percent to 3,590 yen while Isuzu Motors Ltd lost 4.5 percent to 148 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 1.7 percent to 701,000 yen.
The dollar was little changed at 95.30 yen. (Editing by Michael Watson)