Nikkei claws higher on oil, but banks weigh

(Updates with details, stocks)

By Elaine Lies

TOKYO, May 19 (Reuters) - Japan's Nikkei stock average clawed up 0.1 percent on Monday as near record-high oil prices boosted Mitsubishi Corp (8058.T) and other trading houses, with other energy-related shares also climbing.

Nippon Steel Corp (5401.T) and other steelmakers rose after fresh media reports that Toyota Motor Corp (7203.T) had agreed with it and other steelmakers to pay more for sheet steel.

But banks dragged on the market, tracking a fall in their U.S. peers after Merrill Lynch downgraded two large regional U.S. banks, citing a bleak outlook for such banks, while profit-taking kicked in across the board after last week's gains, which saw the Nikkei have its strongest week in three months.

Oil rose on Monday, extending last week's climb that saw prices jump to a record high near $128 a barrel over concerns about tight fuel supply [O/R], and market players said this was boosting stocks despite its potentially negative long-term implications.

"It's basically all just commodities today, with the market ignoring the long-term implications of the high oil prices such as inflation, even though oil is really approaching dangerous levels," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"Otherwise, with the bulk of company earnings out and few economic indicators to watch for, the market doesn't really have too many catalysts this week," he said.

Others said that with trading volume likely to drop off a bit and investors divided on the Nikkei's long-term direction, movements could be exaggerated.

"People are divided pretty strongly into two camps -- those who think the market got a bit overheated last week and is ready for some downward adjustment, and those who are still going strong," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

"Because of this, we may see moves as extreme as 200 points up one day and 200 points down the next. But overall, it's likely to be directionless this week," he said.

The benchmark Nikkei .N225 eked out a gain of 13.92 points to 14,233.40. The broader Topix was up 0.2 percent at 1,399.05.

TRADING HOUSES FIRM

Trading houses led the Nikkei higher, with Mitsubishi -- the nation's largest such company -- up 4.1 percent at 3,840 yen and Mitsui & Co Ltd (8031.T) climbing 4.4 percent to 2,730 yen. Itochu Corp (8001.T) jumped 4.9 percent to 1,316 yen.

Oil and gas field developer Inpex Holdings Inc (1605.T) surged 4.5 percent to 1.39 million yen.

Nippon Steel climbed 2.9 percent to 675 yen and JFE Holdings Inc (5411.T) rose 1.2 percent to 6,100 yen. But banks slid in the wake of the Merrill Lynch downgrade of U.S. banks KeyCorp (KEY.N) and Regions Financial Corp (RF.N) that sent an S&P index of financial shares .GSPF down 1.4 percent.