Nikkei up 1.3 pct, shrugs off N. Korea nuclear test

* Nikkei briefly pares gains after N.Korean nuclear test

* Investors more interested in indicators, GM fate

* Steel shares firm on report of no further price cut

* Dollar's gains against yen also a boost

By Elaine Lies

TOKYO, May 25 (Reuters) - Japan's Nikkei stock average mostly shrugged off news of a North Korean nuclear test to rise 1.3 percent on Monday, with steel shares in favour as concerns of price cuts receded.

Nippon Steel (5401.T), the world's second-biggest steelmaker, and other blast-furnace steelmakers rose after a newspaper reported that major customer Toyota Motor Corp (7203.T) would not seek another price cut from steel mills this financial year, meaning they could see strong profit margins. [ID:nT168789] Drugmaker Shionogi (4507.T) jumped after a report that it plans to market the flu drug peramivir in Japan next year, while construction machinery makers such as Komatsu (6301.T) gained on a brokerage upgrade that cited robust demand in China.

During the noon break, North Korea said it had successfully conducted a nuclear test, causing both Nikkei futures in Osaka JNIc1 and the Nikkei to trim morning gains. [ID:nSEO141656]

But market analysts said that while the news had sparked some immediate profit-taking, the impact was limited.

"North Korea has played this kind of card before. If the test had been carried out by a country that had never done this, the impact would be greater," said Hideyuki Ishiguro, a supervisor at the investment advisory department of Okasan Securities.

"This adds some uncertainty to the regional political picture, but I think investors are paying a lot more attention to economic things right now, such as upcoming indicators and what happens to GM."

Reports later in the afternoon that North Korea had followed the nuclear test with the launch of a short-range missile also failed to faze investors, who were encouraged by the yen's retreat against the dollar.

"The missile launch was a bit of a surprise, but at least it was short-range, something we've seen before as part of regular drills," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

"The yen strength we saw earlier has settled down, and we're seeing some short-covering in stocks now."

The dollar rose 0.3 percent against the yen after the reported missile test and was trading at 95.09 yen, off the day's low of 94.42 yen.

Investors fret about a strong yen because it eats into exporter profits when repatriated.