TOKYO, June 24 (Reuters) – Japan’s Nikkei average ended flat on Thursday, holding above a key support level in choppy trade after losing 3 percent in the past two days.

A wave of short-covering petered out in late trade and technical charts suggested significant gains were likely to be difficult in the face of successive resistance levels and that further falls could not be ruled out.

The Nikkei started the day lower after the Federal Reserve said the U.S. economic recovery is faltering, but then gained, with one market player saying European investors were likely buying domestic demand stocks to rebalance their portfolios.

“The market is getting a bit of a lift from gains in the rest of Asia, and the overall mood isn’t bad even though the dollar is below 90 yen,” said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

“But for the Nikkei to really move higher we need both the euro and the dollar to gain, as well as a bit more momentum — perhaps over the next month as quarterly earnings come out.”

Shares in Softbank Corp (9984.T) rose nearly 3 percent to become the second-biggest contributor to the Nikkei 225 as Apple Inc’s (AAPL.O) iPhone 4 made its global debut, with fans pouring into Softbank outlets and Apple’s flagship Japan store. Softbank is the exclusive iPhone operator in Japan. [ID:nTOE65M07U]

The benchmark Nikkei .N225 finished up 0.1 percent to 9,928.34. Firm support is seen at 9,800, about the level of the Nikkei’s 25-day moving average — a proxy for a one-month moving average that’s closely watched in Japan.

The broader Topix slipped 0.1 percent to 879.77.

Osakabe noted that a gap opened from just under 10,000 to 10,100 when the Nikkei fell Tuesday and that it is likely to rise to fill this, but that further gains will be difficult and the benchmark is likely to move in a narrow range over the long term.

One resistance level is at 10,155, the 38.2 percent retracement of the Nikkei’s fall from its April high to early June low, while another is around 10,300, where the Nikkei’s 200-day and 50-day moving average come in.

In an additional sign of potential trouble, the Nikkei’s slow stochastic, which gives near-term signals on market trends, shows the drop may have further to go.

On weekly charts, the 13-week moving average has crossed below the 26-week moving average — a formation known as a “death cross,” often a sign of more falls.

But Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities, said that it can also be a signal that the market has bottomed out for the short-term. A similar cross formed late last year when the Nikkei hit 9,100, a low subsequently followed by the rebound that peaked in April.

FOREIGN BUYING, IPHONE BOOST

Ministry of Finance data showed overseas investors bought a net 2 billion yen ($22.2 million) of Japanese stocks in the June 13-19 week.

Prior to last week, foreign investors were net sellers for six straight weeks, dumping a net 1.92 trillion yen of Japanese stocks. But so far this year, they are still net buyers.

Softbank rose 2.8 percent to 2,503 yen while Dai-ichi Seiko (6640.Q), which supplies connectors to Taiwanese makers of panels used in iPhones and iPads, surged 9.7 percent to 3,845 yen.

Exporters lost ground broadly, but companies that depend on domestic demand such as property firms found favour. Sumitomo Realty & Development (8830.T) gained 2.9 percent to 1,672 yen, becoming the top percentage gainer among Nikkei components.

Other so-called “defensive” shares, which are seen as resilient in the face of turbulent conditions overseas, gained, with cosmetics firms Shiseido (4911.T) up 1.4 percent to 2,017 yen and home products maker Kao Corp (4452.T) up 1.8 percent to 2,120 yen.

Trade was thin on the Tokyo exchange’s first section, with 1.5 billion shares changing hands, near last week’s four-month low.

Declining shares and advancing shares were almost evenly matched, 791 to 711. (Additional reporting by Aiko Hayashi; Editing by Edwina Gibbs)