* Orix, ANA fall after sources say they will issue shares
* ANA announces details of public offering after close
* After close, Shinsei and Aozora say to merge at 1:1 ratio
* Construction machinery makers rise after China PMI
* Reaction to tankan business sentiment survey mixed
By Masayuki Kitano
TOKYO, July 1 (Reuters) - Japan's Nikkei average slipped 0.2 percent on Wednesday, with Orix Corp and All Nippon Airways sliding after sources said the firms were set to announce large public share offerings.
But construction machinery makers such as Komatsu gained after China's official purchasing managers' index (PMI) for June showed the country's economic recovery is on more solid ground.
Response to the Bank of Japan's quarterly survey of business confidence was mixed, with some analysts saying it had no impact on the market, but others, noting lagging capital spending, saying it was slightly negative.
The Nikkei had risen around 1 percent at one stage but quickly shed its gains in the afternoon.
"It seems there was some large-lot selling in futures," said a portfolio manager at a Japanese asset management firm.
While the reason for such selling was unclear, such moves may reflect profit-taking or hedge-selling by institutional investors, the portfolio manager said.
The Nikkei fell 18.51 points to 9,939.93, beginning the new quarter on a negative note.
In the April-June quarter, the benchmark index jumped 23 percent for its best quarterly gain in about 14 years.
The broader Topix index shed 0.2 percent or 1.46 points to 928.30.
The BOJ's tankan corporate survey showed that confidence among big manufacturers pulled back from a record low hit three months ago, as exports and output improved from a severe downturn late last year.
But it also showed that big firms plan to cut capital spending, a key driver of the economy, by 9.4 percent in the financial year to March 2010, against the market's median forecast for a 6.9 percent fall.
"Basically, the tankan showed that things aren't all that good in the near term but seemed encouraging for the longer term, making its overall impact neutral," said Kenichi Hirano, operating officer at Tachibana Securities.
Orix fell 4.8 percent to 5,530 yen after three sources said Japan's biggest leasing firm and a major property investor plans to raise about 100 billion yen ($1 billion) through a public share offering.
All Nippon Airways, Japan's No. 2 airline, plans to raise more than 150 billion yen ($1.6 billion) in a public share offering, five sources said, sending its shares tumbling 5.9 percent to 317 yen.
ANA said after the close that it would raise up to 182.6 billion yen ($1.9 billion) in a public offering to use for capital spending including new planes.
Construction machinery makers rose after the China PMI data, with Komatsu rising 1.8 percent to 1,519 yen and Hitachi Construction Machinery gaining 1.6 percent to 1,600 yen.
Brokerage CLSA's China Purchasing Managers' Index rose in June to an 11-month high of 51.8 and China's official purchasing managers' index for June also showed China's economic recovery is on more solid ground.
"Since Japan exports a lot to China, such data is positive for Japanese shares," said Hideyuki Ishiguro, supervisor for Okasan Securities' investment strategy department.
Shinsei Bank and Aozora Bank said after the market close that the two banks would merge at a ratio of 1:1.
Before the announcement, Shinsei rose 1.3 percent to 157 yen and Aozora gained 1.3 percent to 151 yen.
Trade was active, with 2.3 billion shares changing hands on the Tokyo exchange's first section compared with last week's daily average of 2.2 billion.
Declining shares outnumbered advancing ones 845 to 716. (Additional reporting by Takeshi Yoshiike and Elaine Lies; Editing by Chris Gallagher)