Nikkei inches up on yen, sheds bulk of early gains

* Relief after U.S. markets receive Chrysler news calmly

* Yen hits near 2-week low vs dollar, buoys exporters

* Japan back in deflation, jobless rate at four-year high

* Canon higher, Fujitsu jumps after earnings

By Shinichi Saoshiro

TOKYO, May 1 (Reuters) - Japan's Nikkei average inched up 0.3 percent on Friday, buoyed as the yen weakened to a near two-week low against the dollar, but giving back much of its earlier gains as players closed positions before public holidays next week.

Canon Inc (7751.T), the world's largest digital camera maker, climbed almost 4 percent after it raised its annual outlook, while Fujitsu (6702.T), Japan's biggest computer server vendor, jumped 16 percent after beating analysts estimates with its annual outlook.

Market watchers said players were calm about Chrysler filing for bankruptcy. [ID:nLU940906]

"The U.S. markets reacted calmly to Chrysler filing for chapter 11. In addition, with the weaker yen lifting exporters, the market was offered some respite," said Tsuyoshi Segawa, an equity strategist at Shinko Securities.

Investors also took gloomy domestic economic data in their stride.

Japanese core annual prices fell 0.1 percent in March, the first fall in around a year and a half, sending the country into its second round of deflation in less than two years, while the jobless rate rose to a four-year high of 4.8 percent. [ID:nT316908]

"The market had priced in a weakening of these indicators. It is now continuing to focus and draw support from yesterday's better-than-expected industrial production numbers," said Segawa at Shinko Securities.

Japanese industrial production numbers showed output in March rose 1.6 percent, twice as fast as forecast, and the first gain in six months. [ID:nT277157] The benchmark Nikkei .N225 climbed 23.58 points to 8,851.84 after gaining as much as 1.3 percent. It ended up 3.9 percent on Thursday.

The Nikkei climbed 8.9 percent in April, its biggest monthly gain in a year, helped by receding fears about the financial system and the global economy.

The broader Topix gained 0.2 percent to 839.44.

"Trading is thin with the weak yen about the only short-term factor to focus on. Though the yen is supportive, there are players who want to close out long positions before the holidays, and the Nikkei could even turn negative later in the day," said Tomomi Yamashita, fund manager at Shinkin Asset Management Co.

Tokyo financial markets will be closed between May 4-6 for a string of national holidays.

Canon gained 3.7 percent to 3,060 yen.

Fujitsu, also Japan's No. 2 PC maker, jumped 16 percent to 487 yen, after it forecast a profit of 80 billion yen for the year to March 2010, far better than a consensus estimate of a 23.8 billion yen profit by 14 analysts. [ID:nT362037]

Softbank (9984.T) rose 4.4 percent to 1,618 yen after Japan's third-biggest mobile phone operator said it would halve its net interest-bearing debt by March 2012 and reduce it to zero by March 2015. [ID:nT16523]

Trade was light on the Tokyo exchange's first section, with 1.08 billion shares changing hands, compared with last week's morning average of 1.16 billion.

Advancing stocks and declining ones were almost evenly matched at 788 to 751.

The dollar advanced 0.3 percent to 98.91 yen JPY= after climbing above 99 yen to hit a near two-week high. [FRX/] (Reporting by Shinichi Saoshiro; Editing by Joseph Radford)