Nikkei nudges higher as Sapporo and Nissan rise

* Nikkei edges up after worst week in 3 mths

* Caution dominates ahead of Fed meeting

* Sapporo soars, Nissan climbs

* Pioneer slides

By Elaine Lies

TOKYO, June 22 (Reuters) - Japan's Nikkei average rose 0.4 percent on Monday, with brewer Sapporo Holdings (2501.T) and car maker Nissan Motor Co (7201.T) making robust gains although caution about a correction in the overall market remained strong.

Fuji Electric Holdings Co (6504.T) and Furukawa Electric Co (5801.T) surged on a report by the Nikkei business daily that they will team up and develop a power chip for hybrid vehicles that will control battery use and increase driving distance.

The Nikkei average has taken a breather since hitting an eight-month intraday high of 10,170.82 earlier this month. It fell 3.5 percent last week, its worst weekly performance in three months.

One near-term key for Japanese equities is the Federal Reserve's two-day policy meeting ending on Wednesday, investors and market analysts said.

"Depending on their comments, (U.S.) long-term interest rates may rise and the dollar could weaken," said Mitsushige Akino, chief fund manager for Ichiyoshi Investment Management, referring to the Federal Reserve.

Investors are worried that higher U.S. long-term yields could hamper the U.S. economy, while a fall in the dollar against the yen could hurt Japanese exporters.

Markets will be watching the Federal Reserve's Open Market Committee for what it says about the economic outlook and a rise in Treasury debt yields, and whether the Fed will make any move to expand or extend its debt buyback programme. [ID:nN19521340]

The Nikkei .N225 rose 40.01 points to 9,826.27.

The broader Topix edged up 0.4 percent to 922.48.

"There's no real reason to sell, but there are also very few reasons to buy," said Yutaka Miura, a senior technical analyst at Mizuho Securities.

"The Nikkei, as with other stock markets, is waiting for signs about whether the recent rally has ended or whether it will continue."