CORRECTED - CORRECTED-Japan Nikkei up, banks sold on fading rate hike hopes

(Corrects headline to "banks sold on fading rate hike hopes", not "banks sold on fading rate cut hopes").

(Updates with details, stocks)

By Elaine Lies

TOKYO, Dec 14 (Reuters) - Japanese stocks were mixed on Friday, with the Nikkei up and the TOPIX flat as banks such as Mizuho Financial Group (8411.T) fell on fading hopes for a central bank rate hike after a survey of corporate sentiment was worse than expected.

Real estate firms also lost ground, mainly on recent poor condominium sales, while electrical equipment companies such as Advantest Corp (6857.T) powered higher after days of selling.

A Bank of Japan corporate survey showed that big manufacturers' business sentiment sank to a two-year low, pushing back expectations of a BOJ rate hike further into next year.

But the BOJ's December tankan corporate survey also showed companies are sticking to their robust capital spending plans, while sentiment at small manufacturers showed a surprising improvement.

Shares first rebounded as the capital spending figures prompted a wave of bargain hunting after stocks fell more than 300 points on Thursday, but as time went on the mood darkened and banks were sold. Some market participants said the market's rebound came about after speculative selling had forced shares down on Thursday, ahead of the settlement of Nikkei options and futures that took place shortly after the Friday opening. Many shrugged off the survey, noting that it took place when oil prices were rapidly rising and fallout from the U.S. subprime loan problem appeared to be spreading. "After all, the tankan was conducted in October and November, when things were looking pretty grim," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities. "It really is just a state of mind."

The benchmark Nikkei .N225 finished the morning up 0.6 percent at 15,632.72 after a volatile morning that saw it at one point up by more than one percent. The broader TOPIX index lost 0.08 percent to 1,514.83.

Morning trade volume jumped to 1.6 billion shares, buoyed by moves in connection with settlement of futures and options. Last week's morning average was 902 million.

The closely watched settlement price, known in Japan as the special quotation or "SQ", is calculated from the opening prices of the 225 shares on the Nikkei average .N225 on the second Friday of the month.

Nikkei futures and options contracts expiring in December likely settled at 15,513.61, Tokyo market participants, citing estimates by local brokerages.

On the Nikkei, declining shares and advancing shares were almost evenly matched.

BANKS SLIP ON FADING HOPES

Banks slid on diminished rate hike hopes and concerns about dealing with the subprime issue after the U.S. Federal Reserve's move in concert with European central banks earlier this week failed to reassure investors.

Financial industry sources said on Wednesday that Mitsubishi UFJ Financial Group (8306.T), Sumitomo Mitsui Financial Group Inc (8316.T) and Mizuho Financial had been approached for contributions of around $5 billion each to a subprime support fund.