Nikkei rises 0.2 pct as China market gains help

(Updates to midafternoon)

TOKYO, Aug 20 (Reuters) - The Nikkei average erased earlier losses and rose 0.2 percent on Wednesday, buoyed by trading firms such as Mitsubishi Corp (8058.T: Quote, Profile, Research, Stock Buzz) after a surge in Chinese stocks helped ease worries about emerging economies.

But bank shares fell, hit by worries about the U.S. financial system, while Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) and other exporters slid on recent gains in the yen and a global economic slowdown.

Soichiro Monji, chief strategist of the equity management department at Daiwa SB Investments, said a jump in Shanghai stocks prompted a recovery in Japanese stocks in the afternoon.

"China seems to be playing a bigger role in the minds of market participants compared to last week, as growing worries about the Chinese economy were said to have contributed to the recent falls here."

"Investors are buying stocks associated with demand from emerging economies such as trading houses and steel makers."

But Monji said worries about the overall global economy weighed on exporters and especially automakers, which are suffering from falling demand in the European and U.S. markets.

By 0445 GMT the benchmark Nikkei .N225 added 25.45 points to 12,890.50, after falling nearly 1 percent during the morning.

The broader Topix .TOPX edged up 0.02 percent to 1,235.78.

China's main stock index .SSEC jumped nearly 6 percent on Wednesday on hopes that the government would introduce a stimulus package to boost the slowing economy and aid the stock and property markets.

The dollar was little changed against the yen at 109.76 yen <JPY=>, having fallen back from a seven-month high of 110.67 yen hit last week. A stronger yen curbs exporters' profits when they are brought back home.

Oil prices CLc1 rose about 1.5 percent on Tuesday as part of a broad commodities rebound triggered by weakness in the dollar.

Trading houses rose, with Mitsubishi climbing 2.1 percent to 2,870 yen and Sumitomo Corp (8053.T: Quote, Profile, Research, Stock Buzz) advancing 2.7 percent to 1,280 yen.

Nippon Steel Corp (5401.T: Quote, Profile, Research, Stock Buzz) rose 0.2 percent to 522 and Sumitomo Metal Industries Ltd (5405.T: Quote, Profile, Research, Stock Buzz) gained 1.1 percent to 469 yen.

But banks shares were weak after U.S. stocks fell for a second straight session on Tuesday on fears that U.S. home finance firms Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) may need a government bailout.

Top lender Mitsubishi UFJ shed 0.8 percent to 822 yen, while No.2 Mizuho Financial Group (8411.T: Quote, Profile, Research, Stock Buzz) was flat at 467,000 yen.

Canon fell 1.8 percent to 5,050 yen, one of the top drags on the Nikkei 225, while Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) lost 1.6 percent to 4,840 yen. (Reporting by Aiko Hayashi; Editing by Michael Watson)