* Nikkei pares gains after rising 3 pct, now up 1.5 pct
* Exporters rise on weaker yen, but economy worries weigh
* Trading houses hit hard by oil prices, extend losses
(Adds stocks, details)
By Elaine Lies
TOKYO, Oct 17 (Reuters) - Japan's Nikkei average rose 1.5
percent on Friday, with Canon Inc <7751.T> and other exporters up
on a weaker yen, but early gains were trimmed by worries about a
slowing global economy.
Mitsubishi Corp <8058.T> and other trading houses extended
losses as long-term oil demand was expected to remain weak,
raising fears about profits, while shipping firms slipped as
freight rates continued to slide.
Tokyo shares were tracking Wall Street, which bounced back in
a day of volatile trade. U.S. shares fell after weak economic
data fuelled recession fears but climbed as bargain hunters
snapped up shares. []
But market players warned that economic fears had not faded
and were keeping gains capped for now.
"A safety net may have been put in place for the financial
system, but the worsening of the global economy has just begun,"
said Koichi Ogawa, chief portfolio manager at Daiwa SB
Investments.
"There's a lot of nervousness about this here in Japan, which
is so export-dependent. The biggest worry right now is emerging
markets, especially China, which appears to be slowing too."
Other market players agreed, noting that the benchmark Nikkei
<> was likely to move between 8,400 and 8,800 over the next
week or so.
"What's going on right now is a tug-of-war between the real
economy and government policies, and this is being reflected in
the market," said Hiroichi Nishi, a general manager at the equity
division of Nikko Cordial Securities.
"Expect volatile movements in stocks for a while."
A Reuters poll of 10 market players on Thursday found that
most see the only way to halt the slide in the Nikkei is
government spending and new economic policies, preferably as part
of a coordinated effort between major economic powers.
[].
Japan's economy is teetering on the brink of recession and a
Reuters survey on Thursday showed manufacturers at their
gloomiest since six years ago, when the country was in the
aftermath of a banking crisis. Manufacturers also expected the
Bank of Japan's next move to be a cut in interest rates.
Economics Minister Kaoru Yosano has stressed the need for
additional economic steps, saying the deepening financial crisis
will put Japan's economy in a more severe situation.
He said the package would include tax reforms, and would be
aimed at avoiding an extreme downturn in the nation's economy.
TRADING HOUSES TUMBLE
A slightly weaker yen led to buying of exporters, with Canon
up 4 percent to 3,130 yen and Honda Motor Corp <7267.T> rose 4.3
percent to 2,205 yen, both among the top five contributors to the
Nikkei 225 by volume weight. Sony Corp <6758.T> rose 2.8 percent
to 2,385 yen.
But trading houses extended sharp losses, hit hard by oil
prices, which despite rising on Friday and a bounce after
Thursday's settlement, still remain below $73. During the day on
Thursday they fell to less than $70, a 15-month low. <CLc1>.
"The big worry for a lot of these trading houses is that
they're engaged in a fair number of long-term energy projects,
and the fall in oil prices raises concern about the profitability
of these projects," Daiwa SB's Ogawa said.
Mitsubishi slipped 2.7 percent to 1,632 yen and Mitsui & Co
<8031.T> fell 4.9 percent to 930 yen. Itochu Corp <8001.T> was
down 2.1 percent to 460 yen.
Many shipping firms also continued to sink, after the Baltic
Exchange's chief sea freight index for global raw materials trade
<.BADI> slid 6.8 percent on Thursday.
Mitsui OSK Lines Ltd <9104.T> slid 1.3 percent to 527 yen and
Kawasaki Kisen Kaisha Ltd <9107.T> shed 0.5 percent to 401 yen.
Trade was light on the Tokyo exchange's first section, with
1.04 billion shares changing hands, compared with last week's
morning average of 1.29 billion.
Advancing stocks outnumbered fallers by more than 5 to 1.
(Reporting by Elaine Lies; Editing by Hugh Lawson)
