Tokyo - Tokyo stocks were 0.40 percent lower in morning trade on Tuesday on profit-taking and a stronger yen, following a drop on Wall Street that was stoked by poor US manufacturing data.

The benchmark Nikkei 225 index at the Tokyo Stock Exchange was down 37.92 points at 9,420.26 by the break, while the broader Topix index of all first-section shares slipped 0.17 percent, or 1.35

points, to 780.38.

The Dow Jones Industrial Average slipped 0.46 percent to 12,965.60 after the Institute for Supply Management said its closely-watched index on manufacturing activity for November fell into contraction after two months of expansion.

Businesses surveyed by the ISM blamed the slow global economy and uncertainty over talks in Washington, where talks are gridlocked on agreeing a plan to avoid the fiscal cliff of tax hikes and spending cuts that will likely tip the economy into recession.

Tatsunori Kawai, chief strategist at Securities, said investors had largely priced in hopes for further Bank of Japan easing measures after the December 16 general election, which is widely expected to see main opposition leader Shinzo Abe become the country's next prime minister.

Abe has repeatedly said he would pressure the central bank for more aggressive monetary easing measures to boost the world's third-largest economy.

“The market is in line for a bout of profit-taking but should soon stabilise after the initial selling wave,” Hiroichi Nishi, general manager of equities at SMBC Nikko Securities, told Dow Jones Newswires.

In Tokyo stock trading, Sharp rose 1.74 percent to 175 yen after reports that US chipmaker Qualcomm was set to buy about five percent of the company for $122 million.

The cash-strapped Japanese electronics giant has also reportedly been talking with other US technology firms, including Intel and Dell, about a capital injection.

In forex trading, the euro bought $1.3060 and 107.23 yen in Tokyo, from $1.3051 and 107.36 yen in New York late on Monday, while the dollar weakened to 82.10 yen from 82.24 yen. - Sapa-AFP