Japan shares up but pare gains, watching yen

TOKYO, Nov 19 (Reuters) Japanese shares pared gains but remained up on Monday, buoyed by stronger bank shares and a weaker yen that took exporters such as Hitachi Ltd higher, but gains were limited by concern about the U.S. economy and stocks.

Faced with a dearth of other strong factors, the Nikkei was taking its cue from the currency market, where the dollar -- which had earlier hovered around 110.90 yen -- had slipped to around 110.80 yen by late morning.

A recovery in U.S. stocks after Friday's wide price swings gave Tokyo investors the initial reassurance they needed to buy, but investors were eager to sell at the highs.

''But with concern lingering about long-term moves in U.S.

stocks and the economy, there's no real reason to buy Tokyo up too high,'' said Yutaka Miura, senior technical analyst at Shinko Securities.

Banks rose on a combination of short-covering after recent selling and a report in the Nikkei business daily saying Japan's banking regulator is exploring ways to allow banks to invest in non-financial firms operated through subsidiaries.

The report said the Financial Services Agency, was also considering loosening rules that would fully allow banks to trade commodities and commodity futures, with an eye on raising global competitiveness among Japanese banks through deregulation.

''This isn't a bad factor for banks, but it also isn't the sort of thing to set off strong buying,'' said Takahiko Murai, general manager of equities at Nozomi Securities.

''Japan's bureaucracy is really behind on this kind of thing, and you sort of have to ask why they're doing this now. It'll take quite some time and I myself doubt how much impact it would actually have on profits.'' The Nikkei ended morning trade up 0.3 percent at 15,197.912, a rise of 43.21 points, after earlier rising as high as 15,302.76. The broader TOPIX index was nearly flat, up just 0.01 percent at 1,471.76.

Market participants said the focus of afternoon trade is likely to remain the yen's movements, with activity in other Asian markets also expected to become a factor.

As of 0230 GMT, the Nikkei was lagging other Asian stocks, with MSCI's measure of other Asian Pacific stocks up 0.65 percent.

UP BUT OFF HIGHS Banks clung to gains but were off earlier highs.

Typical was the movement of Mitsubishi UFJ Financial Group, which ended morning trade up by 1.2 percent at 945 yen but at one point had risen as high as 980 yen.

Sumitomo Mitsui Financial Group tracked a similar course, hanging onto gains of 0.9 percent at 794,000 yen but down from a high of 819,000 yen.

Resona Holdings Inc gained 1.5 percent to 202,000 yen after Nikko Citi raised its rating to ''1H'' from ''2H'', citing the bank's stable earnings and its unhurried stance on the repayment of public funds.

The bank raised its forecast for the year to March by 9.5 percent to 230 billion yen, although that falls short of the market consensus of 249.6 billion yen and would still mark a year-on-year decline of 65 percent.

Hitachi remained one of the Nikkei's strong gainers, up 3.7 percent at 760 yen, but it was other exporters such as Honda Motor Co Ltd -- up 1.9 percent at 3,850 yen -- that really helped boost the market.

Trade was thin, with 763 million shares changing hands on the Tokyo Stock Exchange's first section compared with last week's morning average of 929 million.

Declining shares beat advancers by more than two to one.

(Editing by Malcolm Whittaker) Reuters SKB VP0855