U.S. Markets closed

Nikkei nearly flat as U.S. government shutdown drags on

* Nikkei's support seen at 14,000

* Event-driven hedge funds unwinding buy positions - analyst

By Ayai Tomisawa

TOKYO, Oct 3 (Reuters) - Japan's Nikkei stock average was

mostly flat on Thursday morning, struggling to gain momentum as

investors fretted about the U.S. government shutdown and agenda

for raising the debt ceiling.

Adding to the worries, a report showed that U.S. private

employers had added fewer jobs than expected in September.

Investors were looking to this data for guidance because

Friday's broader, government payrolls report will be delayed if

no deal on the budget is reached by then.

"Investors have placed their buy positions on expectations

that U.S. demand will rise on the back of its economic

recovery," said Fumio Matsumoto, a fund manager at T&D Asset

Management. "They won't turn sellers all the sudden, but the

market may stay sluggish."

The Nikkei was up 0.02 percent at 14,172.72 as of

0155 GMT, staying below its 25-day moving average of 14,241.78

as well as 14,193.99, a 50 percent retracement of its May high

to its low in June.

The Topix rose 0.2 percent to 1,177.19.

President Barack Obama met with Republican and Democratic

leaders in Congress over the shutdown on Wednesday but a

solution seemed unlikely as both sides dug in for what could be

a long stalemate.

Other market participants said that the Japanese market was

likely to underperform other Asian markets as investors take

profits from recent rises.

"Event-driven hedge funds unwound their buy positions after

the government's closely watched growth-strategy announcement,

and there may be more profit-taking by funds which still have

buy positions," said Norihiro Fujito, a senior investment

strategist at Mitsubishi UFJ Morgan Stanley Securities.

"But the Nikkei should be supported around 14,000 because if

it dips below the level, pension funds may buy as they were said

to increase their holdings of Japanese stocks."

On Wednesday, the Nikkei dropped 2.2 percent after Prime

Minister Shinzo Abe on Tuesday evening decided to increase the

sales tax to 8 percent from 5 percent next April as planned and

announced a 5 trillion yen ($51 billion) stimulus package to

help cushion any blow to the economy.

On Thursday, exporters were mixed, with Toyota Motor Corp

up 0.5 percent, Nissan Motor Co flat, and Sony

Corp down 0.5 percent.

Gree Inc dropped 3 percent after the social gaming

company said it is calling for 200 employees, around 10 percent

of its workforce, to voluntarily resign amid deteriorating