Nikkei flat as profit-taking offsets auto rises

* Nikkei flat but cars and car parts makers gain

* Banks up after MUFG posts good results, Mizuho upgrade

* Trade largely directionless ahead of earnings, indicators

* Panasonic reports smaller loss than expected

By Elaine Lies

TOKYO, Aug 3 (Reuters) - Japan's Nikkei average was flat on Monday after briefly hitting a new 10-month high, with profit-taking after recent sharp gains offsetting rises in auto and tyre makers on hopes the auto sector has seen the worst.

Nissan Motor Co (7201.T) rose 5.4 percent and Bridgestone Corp (5108.T), the world's largest tyre maker, gained 5.2 percent. Denso Corp (6902.T), a car parts maker, climbed 4.5 percent.

Banks rose after Mitsubishi UFJ Financial Group (8306.T) posted its first profit in three quarters, while a brokerage upgrade helped Mizuho Financial Group (8411.T) jump 6 percent.

But profit-taking emerged as the Nikkei took a breather following recent gains that sent it to a 10-month closing high on Friday and saw it rise 4.1 percent for the whole of last week.

It also booked its fifth straight months of gains in July, its longest such run since 2005.

"There's not a lot of direction, with U.S. shares firm but pausing for now, and the Nikkei seeing a little profit-taking after climbing so fast," said Noritsugu Hirakawa, a strategist at Okasan Securities.

"It won't fall much since results have been largely good, but to rise now we need something positive on the macroeconomic front, like good indicators, and people are waiting for U.S. employment data on Friday."

In choppy trade, the benchmark Nikkei .N225 lost 4.36 points to end at 10,352.47, though it briefly rose as far as 10,380.57 in morning trade -- its highest point since early October.

The broader Topix .TOPX gained 0.8 percent to 957.56.

Panasonic Corp (6752.T) reported a smaller-than-expected quarterly loss as it cut costs to fight a firmer yen and weak TV and digital camera demand, and it stuck to its annual outlook for net loss to shrink by half. [ID:nT167959]

CARS POWER HIGHER

Investors used results as a guideline in the absence of any other overarching factors, with firms that did poorly, such as Fuji Film Holdings (4901.T), losing ground.

Fuji Film fell 3.2 percent to 2,990 yen after reporting a first-quarter group operating loss of 2.7 billion yen ($28.50 million) compared with a profit of 45.9 billion yen in the same period last year, hit by sluggish demand and a stronger yen.

Showa Shell Sekiyu (5002.T), Japan's fifth-largest refiner, tumbled 5.1 percent to 1,005 yen after slashing its operating income forecast to a loss of 25 billion yen from nil.

But car makers rose, riding growing hope that the worst may be over for the sector after Honda Motor Corp (7267.T) and Nissan both posted better than expected results last week.

Toyota Motor Corp (7203.T) reports earnings on Tuesday.

The U.S. Congress moved on Friday to triple funding for the "cash for clunkers" auto rebate programme, with Tokyo market players saying expectations that the programme would be extended boosted auto and related shares. [ID:nN31434039]

"Basically, all shares connected to the auto industry are sensing recovery," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

"There's a lot of expectations that the sector bottomed out in the January-March quarter, with the past quarter seeing gains on various incentive programmes and hope growing that the momentum will continue throughout this current quarter."

Ford Motor Co (F.N) said on Sunday it will report that July sales made the first year-on-year monthly gain since November 2007, aided by a surge in "clunker" business. [ID:nN02342820]

Japanese car makers have seen gains after the government offered tax incentives for purchase of new hybrid cars.

Bridgestone rose to 1,729 yen, while Yokohama Rubber Co (5101.T) gained 2.6 percent to 516 yen. Toyo Tire & Rubber Co (5105.T) jumped 4.8 percent to 217 yen.

Toyota rose 2.5 percent to 4,090 yen, and Nissan rose to 726 yen.

Fuji Heavy Industries Ltd (7270.T), the maker of Subaru cars, jumped 8.4 percent to 414 yen after its U.S. arm said on Saturday it expected its sales in July to rise 30 percent to a record.

Trade was moderate on the Tokyo exchange's first section, with 2.1 billion shares changing hands, compared with last week's daily average of 2 billion.

Advancing stocks outnumbered declining ones by nearly 2 to 1. ($1=94.73 Yen) (Additional reporting by Aiko Hayashi; Editing by Michael Watson)