* Nikkei claws up, support holds near 25-day MA at 9,800
* Short-covering a boost after 3 pct fall earlier this week
* Softbank gains as Apple iPhone makes global debut
By Elaine Lies
TOKYO, June 24 (Reuters) - Japan's Nikkei average reversed course to claw higher on Thursday after a key support level held, with short-covering emerging in the wake of 3 percent falls over the past two days as euphoria over China's decision to make the yuan more flexible faded.
The benchmark started the day lower after the Federal Reserve said the U.S. economic recovery is faltering, but then gained, with one market player saying European investors were likely buying domestic demand stocks to rebalance their portfolios.
The Fed scaled back its assessment of the pace of recovery and also issued a cautionary note about volatile financial markets in light of Europe's debt woes, while sales of new U.S. homes fell to their lowest ever in May. [
] [ ]"The market is getting a bit of a lift from gains in the rest of Asia, and the overall mood isn't bad even though the dollar is below 90 yen," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.
"But for the Nikkei to really move higher we need both the euro and the dollar to gain."
In choppy trade, the benchmark Nikkei <
> inched up 0.5 percent to 9,974.68, while the broader Topix < > rose 0.4 percent to 883.94.Market players say support looks likely to remain firm around 9,800, the level of the Nikkei's 25-day moving average, even though it failed to hold above a chart retracement on Tuesday, with further support near a six-month low hit earlier this month around the 9,400 level.
Osakabe noted that a gap opened from just under 10,000 to 10,100 on Tuesday and that the Nikkei is likely to rise to fill this, but that further gains will be difficult and the benchmark is likely to move in a broad range over the long term.
On Thursday, orders for Japanese stocks placed through 10 foreign securities houses before the start of trade showed net selling for a third straight day.
But Ministry of Finance data showed overseas investors bought a net 2 billion yen ($22.2 million) of Japanese stocks in the June 13-19 week, in a sign that foreigners may be tiptoeing back into the market.
Prior to last week, foreign investors were net sellers for six straight weeks, dumping a net 1.92 trillion yen of Japanese stocks. But so far this year, they are still net buyers, picking up 832.5 billion yen worth.
Shares of Softbank <9984.T> rose 2.3 percent to 2,490 yen as Apple Inc's <AAPL.O> iPhone 4 made its global debut, with fans pouring into Softbank outlets and Apple's flagship Japan store. Softbank is the exclusive iPhone operator in Japan. [
] (Additional reporting by Aiko Hayashi; Editing by Chris Gallagher)