Japan stocks rise but gains limited, exporters up

(Updates to midmorning)

TOKYO, March 18 (Reuters) - Japan's Nikkei benchmark rose more than 1 percent on Tuesday, buoyed by gains in Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) and other exporters as the yen held above a 13-year low, with rises in steel shares providing an additional boost. But the advance was expected to be limited ahead of a Federal Reserve board meeting later in the day and amid worries about the forthcoming earnings of U.S. financial firms such as Lehman Brothers LEH.N after the fire sale of Bear Stearns BSC.N.

"There's still a lot of uncertainty in the markets, but at the same time expectations of a Fed rate cut of 75 to 100 basis points are sparking some short-covering," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

Currency moves were being closely watched after the dollar fell to a near 13-year low against the yen on Monday, shadowing the earnings outlook for exporters. The dollar was trading at around 97 yen by midmorning in Tokyo <JPY=>.

U.S. President George W. Bush acknowledged on Monday that the U.S. economy is going through "challenging times" and said that "when need be we'll act decisively in a way that continues to bring order to the financial markets." [ID:nL17747137]

Tokyo market players were divided on this statement, with some saying markets took heart but others were more sceptical, noting that no concrete moves were specified.

The market shrugged off reports that Japanese Prime Minister Fukuda will submit a proposal on the Bank of Japan leadership later on Tuesday, a day before the term of current governor Toshihiko Fukui expires.

"The fact that they may actually choose a leader is unlikely to spark much of a positive response, since this is the way things should be, Ushio said.

At 0112 GMT the benchmark Nikkei .N225 was up by 1.2 percent at 11,926.98, a day after it fell nearly 4 percent to a new two and a half year low. The broader TOPIX was up 0.9 percent at 1,160.27.