Nikkei up 0.9 pct, oil fall eases inflation worry

*Nikkei up 0.9 pct, fall in oil prices eases inflation worry *Fast Retailing rises on solid monthly sales growth

*Energy shares extend losses on cheaper oil (Adds stocks and comments)

By Taiga Uranaka

TOKYO, Sept 3 (Reuters) - Japan's Nikkei stock average rose 0.9 percent on Wednesday, led by exporters like Honda Motor Co Ltd (7267.T) after a steep drop in oil prices eased concerns over rising inflation.

Index heavyweight Fast Retailing Co Ltd (9983.T) climbed after the retailer reported solid same-store sales growth at its Uniqlo casual clothing stores.

But the market's gain was limited as energy shares such as oil and gas explorer Inpex Holdings Inc (1605.T) extended losses.

"The drop in oil prices is a hugely positive factor for consumer spending in the U.S. and other markets, and that will contribute to Japanese companies' sales," said Junichi Misawa, executive officer at STB Asset Management.

"But in the short term, investors may be more concerned about what's behind the fall in crude prices, which is demand worries caused by the economic slowdown."

The benchmark Nikkei .N225 ended the morning up 109.21 points at 12,718.68. The broader Topix gained 0.8 percent to 1,222.36.

FAST RETAILING UP

Fast Retailing climbed 2.5 percent to 11,290 yen after the retailer said that same-store sales at its Uniqlo casual clothing stores in Japan rose 4.2 percent in August, lifted by solid sales of autumn items. It will hold a business strategy briefing later in the day.

Honda rose 4.5 percent to 3,510 yen, becoming the biggest contributor to the Nikkei.

Inpex shed 4 percent to 1.024 million yen after U.S. crude oil futures tumbled on Tuesday as Hurricane Gustav's impact on Gulf of Mexico oil rigs and platforms and Gulf Coast refineries was seen as limited, and as a resurgent dollar pressured the market. [O/N]

Trading houses were also hit as they have stakes in overseas oil fields and their profits are boosted when oil prices rise.

Mitsui & Co (8031.T) plunged 5.4 percent to 1,693 yen and Mitsubishi Corp (8058.T) slid 4.1 percent to 2,710 yen.

Paper mills, considered among the biggest beneficiaries of cheaper oil, jumped, with Nippon Paper Group Inc (3893.T) up 8.4 percent at 334,000 yen and Oji Paper Co Ltd (3861.T) gaining 6.9 percent to 586 yen.