Japan Nikkei climbs, trading firms strong

(Updates to midmorning)

TOKYO, May 19 (Reuters) - Japan's Nikkei stock average climbed 0.5 percent on Monday, with Mitsui & Co Ltd (8031.T) and other trading houses rising on near-record oil and strong metals prices while exporters rose on a weaker yen.

Top lender Mitsubishi UFJ Financial Group (8306.T) and other banks slid, however, in tandem with U.S. peers that weakened after Merrill Lynch downgraded two large regional U.S. banks, citing a bleak outlook for such institutions.

Oil extended last week's climb, with U.S. light crude for June delivery CLc1 rising to $126.60 a barrel by 0030 GMT.

"There's a definite rise in resources, and that's a big plus for places like trading houses," said Yutaka Miura, senior technical analyst at Shinko Securities.

"But the gains this morning are mainly short-covering, and whether the market can hold onto them in the face of likely profit-taking throughout the day remains to be seen."

But any losses would likely be limited as investors swooped in to buy on dips, other market players said, citing recent rises in trading volume.

"As long as this energy continues, other investors will buy on dips, keeping the downside solid and confining activity to a narrow range at relatively high levels," said Hiroichi Nishi, general manager of the equity division at Nikko Cordial Securities.

The benchmark Nikkei gained 68.46 points to 14,287.94, while the broader Topix was up by 0.3 percent at 1,399.54.

Trading firms charged higher, with Mitsui & Co up 3.8 percent at 2,710 yen and Mitsubishi Corp (8058.T), Japan's largest trading house, up 2.7 percent at 3,800 yen, making it one of the top contributors to the Nikkei's rise.

Steelmakers climbed as well, with Nippon Steel Corp (5401.T) rising 2.7 percent to 674 yen and JFE Holdings Inc (5411.T) up 1.3 percent at 6,110 yen.

But Mitsubishi UFJ was down 1.6 percent at 1,071 yen and No.2 bank Mizuho Financial Group (8411.T) was down 0.9 percent at 544,000 yen.

Sumitomo Mitsui Financial Group (8316.T) was down 2.4 percent after reporting on Friday a threefold increase in fourth-quarter profit, rebounding from massive losses at its consumer finance unit a year earlier, but forecasting weaker-than-expected growth this year. [ID:nT306481]

Canon Inc (7751.T) edged up 0.9 percent to 5,620 yen, while Sony Corp (6758.T) also rose 0.9 percent, to 5,210 yen. (Reporting by Elaine Lies, Editing by Brent Kininmont)