Nikkei to trade narrowly, financials set to weigh

TOKYO (Reuters) - Japan's Nikkei stock average is likely to trade narrowly with a downward bias on Wednesday, with financial shares such as Mizuho Financial Group (8411.T> weak after their U.S. peers fell on worries about toxic assets.

Wall Street tumbled as earnings season began, with Alcoa Inc (AA.N) reporting its second consecutive quarterly loss after the bell, igniting worries about another round of poor profits and whether the recent rally is sustainable.

Investors may focus on Kobe Steel Ltd (5406.T), Japan's fourth-biggest steelmaker, which downgraded its earnings estimate for the year ended March 31 to a net loss.

"Japanese banking shares are likely to have poor results and this, along with weakness in U.S. banking shares, will weigh on financials," said Yoku Ihara, manager at the investment information department of Retela Crea Securities.

"But the worst worry about the financial sector is over, so shares are unlikely to fall that sharply."

Other market players said short-covering is expected to emerge at any lows, keeping the Nikkei in a tight range.

The benchmark Nikkei .N225 is expected to move from 8,700 to 8,900. It closed at 8,832.85 on Tuesday, snapping a four-day rising streak.

Nikkei futures traded in Chicago closed at 8,800 compared with 8,860 in Osaka.

(Reporting by Elaine Lies; Editing by Chris Gallagher)