Nikkei ends above key support; technicals murky

* Nikkei claws back above level around 50% retracement

* Nikkei posts worst week in over a month

* RSI at 32, slow stochastic pointing up but MACD still falls

* Next targets seen 9,000, 8,500

* Short-covering emerges in oversold blue-chips like Sony

By Aiko Hayashi and Elaine Lies

TOKYO, July 2 (Reuters) - Japan's Nikkei stock average clawed higher in choppy trade on Friday, holding just above a key retracement support level as concern about the strength of the global economic recovery mounted ahead of U.S. jobs data.

The technical picture was murky. The Nikkei's slow stochastic, a measure of how oversold the market is and whether it is in a short-term up or down trend, is deep in oversold territory but pointing slightly up, while its MACD, a measure of market momentum, continued to head lower.

Market players said the euro's rise to a five-week high against the dollar prompted short-covering on Friday in blue-chip shares that fell to multi-month lows the previous day. [FRX/]

As investors moved to shrink their riskier asset holdings, the Nikkei posted its worst week in more than a month, while it dropped 15.4 percent on the quarter to June 30. That was its worst quarterly performance since the fourth quarter of 2008, just after Lehman Brothers failed.

"The U.S. economy doesn't look so good. Wall Street is choppy and it's hard to predict trends, but it's starting to look a bit like a bear market," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"There was some aggressive selling yesterday from foreign investors, but this appears to have ebbed today. Still, if the Nikkei breaks below 9,000 things will start to look very bad."

Investors were reluctant to actively take positions before they see Friday's U.S. jobs data, but one analyst said long-term investors such as pension funds were likely buying on dips.

Worries about the health of the global economic recovery were underscored by weak U.S. manufacturing and employment data, causing investors to pull back also ahead of a long holiday weekend in the United States.

The Nikkei benchmark .N225 moved in and out of negative territory but managed to end the day above 9,200 support, which is roughly a 50 percent retracement of the move up from its March 2009 low to its high in April.

It rose 0.1 percent or 12.11 points to 9,203.71, after rising as high as 9,259.14 at one stage. It shed 5.5 percent on the week, its worst week since late May.

The broader Topix .TOPX rose 0.3 percent to 830.98.

The Nikkei's RSI came in at 32, hovering near a six-week low. A figure of 30 or below would indicate that the Nikkei is in oversold territory. It is also at the edge of its lower Bollinger Band, indicating its short-term downtrend is slightly overstretched.

Market players said while some support is likely around 9,100, the next significant target is just over 9,000, the level of the Nikkei's November low. Any fall below 9,000 could see the drop accelerate, with little near-term support seen below there.

There are also a large number of Nikkei futures options with strikes at 9,000 and 8,500.

Some 1.6 billion shares changed hands on the Tokyo exchange's first section, up from a four-month low marked on Monday.

Advancing stocks outnumbered declining ones, 939 to 583.

DARKENING ECONOMIC PICTURE

On Thursday, the Institute for Supply Management's barometer of growth in U.S. manufacturing activity slipped to a six-month low, while initial jobless claims increased to 472,000. The market had expected claims to decline to 452,000. [ID:nN01108492]

The June non-farm payrolls report, due out later on Friday, is expected to show a decline of 110,000, according to a Reuters poll of economists.

"It's hard to see what will happen, because while a halt to the euro's recent slide has helped the market today, the U.S. data yesterday was worse than expected," said Hiroaki Kuramochi, chief equity market officer at Tokai Tokyo Securities.

"Investors are still pulling out of risky assets and there's still concern about sovereign risk issues in Europe."

Some exporters, battered to multi-month lows on Thursday, were clinging to gains produced by short-covering.

Sony Corp (6758.T) rose 0.6 percent to 2,310 yen and Canon Inc (7751.T) gained 1.1 percent to 3,260 yen.

Toyota Motor Corp (7203.T) inched up 0.3 percent to 3,020 yen. It may recall up to 270,000 vehicles worldwide to fix an engine glitch, with Japan's Asahi newspaper reporting the move could cost the car maker up to $228 million. [ID:nN01142537]

"The latest quality problem is a selling factor, but the stock is already at a level where further falls are hard to come by," said Fumiyuki Nakanishi, manager at SMBC Friend Securities.

The stock hit its lowest in 15 months the previous day.

But others, such as Honda Motor Co (7267.T) and Advantest Corp (6857.T) slipped, losing 0.7 percent to 2,495 yen and 2.8 percent to 1,770 yen, respectively.

Shares of Toshiba (6502.T) rose 1.6 percent to 446 yen. It said it is developing lithium-ion battery systems for electric vehicles with Mitsubishi Motors Corp (7211.T). Mitsubishi Motors ended the day flat.

Japan's largest retailer Seven & I (3382.T) slid 2.1 percent to 1,983 yen after it reported a fall of almost 11 percent n quarterly operating profit, though it stuck to its annual forecast for moderate growth, helped by cost-cuts. (Editing by Charlotte Cooper and Edwina Gibbs)