(Refiles to fix garbled bullet points, corrects dateline)
* Consensus for another sharp Nikkei decline being challenged
* Domestic demand stocks may yield positive surprises-fund manager
* Nikkei may fall to 8,500 in June-July -BoFA Merrill
* Volume second-lowest in 2011 ahead of earnings reports
* Goldman downgrades push down Softbank, other telecoms stocks
By Antoni Slodkowski
TOKYO, April 18 - Tokyo stocks dipped in light trade on Monday but held above a key support level, with more and more market players saying the prevailing view that the Nikkei was heading for another sharp decline now looked like it might be wrong.
Trading volume hit its second-lowest level for 2011 as market players took to the sidelines ahead of corporate earnings next week when key exporters like Canon Inc and Panasonic Corp are due to report.
The Nikkei benchmark has recouped around two-thirds of the losses incurred after the devastating March 11 earthquake, tsunami and ensuing nuclear crisis.
But while analysts warn of downside risks in the next few weeks as the first post-quake earnings results hit the market and as excess liquidity provided by the U.S.'s quantitative easing policy peters out in June, some also think these worries are overdone.
"Everyone is looking at the recovery of Japanese stocks in the long term and extremely cheap valuations after the post-quake sell-off," said Hideo Arimura, a senior fund manager at Mizuho Asset Management.
"That's why the market is holding up really well despite so many uncertainties and probably won't fall too much, ignoring all the talk about the possible downside risk," he said.
The benchmark Nikkei average ended down 0.4 percent at 9,556.65, with declines led by telecoms stocks after Goldman Sachs cut its rating on Softbank Corp .
It finished above its 25-day moving average, now at 9,504.95, marking the fourth straight session it has closed above the closely-watched line.
The broader Topix shed 0.6 percent to 836.34.
Barring further deterioration at the Tokyo Electric's Fukushima nuclear plant, the market will likely hover around recent levels and begin a slow recovery in the second half of the business year, some fund managers said.
"The consensus is that domestic-demand stocks will get hit hard, but I think we will see some real positive surprises there too," said Yuuki Sakurai, CEO of Fukoku Capital Management.
But some are still betting on another sharp decline.
"We forecast that the index will fall below 8,500 In June-July," equity strategist Masatoshi Kikuchi of Bank Of America Merrill Lynch wrote in a research note.
"However, we forecast a recovery in the Nikkei 225 to about 11,000 at end-2011, as the market starts to price in an improving economy and earnings in 2012 once the worst of the summer power shortages has passed."
TELECOMS WEAK
Softbank Corp , a company with a more than 4 percent weighting in the Nikkei index according to Thomson Reuters data, slipped 2.4 percent leading declines in telecom stocks after Goldman Sachs cut its rating to "sell" from "neutral", saying that heavy capital investment was pushing down profitability.
KDDI Corp slipped 0.4 percent at 499,000 yen after hitting an intraday low of 483,000 yen, depressed by a Nikkei business daily report that Tokyo Electric planned to sell its shares in the telecoms company to help pay for costs stemming from the crisis at its nuclear power plant.
Asia's largest utility holds about 360,000 shares in KDDI, or an 8 percent stake, which is worth about 180 billion yen ($2.2 billion) at current market prices, the daily said. [ID:nL3E7FH002]
JFE Holdings fell 1.8 percent to 2,178 yen after the Nikkei business daily reported that the world's No. 5 steel producer looks set to book a net profit of 50-60 billion yen for the year to end-March, below its estimate of 70 billion yen due to losses from the March 11 earthquake. (Additional reporting by Ayai Tomisawa; Editing by Edwina Gibbs)