Nikkei flat as banks gain but yen worry weighs

                                
 * Banks gain after Goldman Sachs upgrade on U.S. peers
                                
 * Mazda jumps after capital raise, outlook lift
                                
 * Sentiment fragile on earnings worries due to yen -analysts
                                
 * Nikkei likely to hit 9,000 if it goes below 9,500 -analyst
                                
 By Aiko Hayashi
                                
 TOKYO, Oct 6 (Reuters) - The Nikkei share average was flat on
Tuesday, with banking shares such as Mitsubishi UFJ Financial
Group <8306.T> gaining after their U.S. peers rallied following a
Goldman Sachs upgrade on the bank sector.
                                
 But Fast Retailing <9983.T> slid 3.1 percent, weighing on the
market a day after leaping 15 percent on news that same-store
sales at its Uniqlo casual-clothing chain in Japan jumped 32
percent in September.
                                
 Market players said they were worried about the impact of the
recent strength of the yen <JPY=> on exporters' earnings,
dampening investor confidence and capping gains in the overall
market.
                                
 "Although gains are still due to short-covering, Goldman's
upward revisions for bank earnings forecasts in the United States
are helping bank shares here higher," said Takahiko Murai,
general manager of equities at Nozomi Securities.
                                
 "But recent strength in the yen is keeping investors from
actively buying on dips as the strong yen could force exporters
to lower their earnings forecasts for the second half of the
business year."
                                
 The benchmark Nikkei <.N225> added half a point to 9,675.00.
It fell 0.6 percent the previous day to book its lowest finish
since July 21 at well below its 25-day moving average. Last week,
the index shed 5.2 percent, its worst weekly loss in about three
months.
                                
 The broader Topix <.TOPX> inched up 0.1 percent to 868.01.
                                
 "If the Nikkei breaks below 9,500, the next target will
likely be around 9,000, provided the market sees further strength
in the yen and another round of a fall in U.S. stocks," said
Yutaka Miura, a senior technical analyst at Mizuho Securities.
                                
 Mazda Motor <7261.T> jumped 4.3 percent to 193 yen after it
said it would raise up to $1.1 billion in a share sale to invest
in hybrid and other technologies in what analysts said was a
long-overdue bid to close the gap with rivals. It also halved its
net loss forecast for the year to March. [ID:nT115472]
                                
 BANKS GAIN, FAST RETAILING DOWN
                                
 U.S. financial stocks rallied on Monday, and were the top
positive on the S&P 500 index <.SPX> after Goldman Sachs upgraded
the large-cap bank sector, saying share prices for companies in
the industry didn't reflect their earnings power. [ID:nBNG508012]
                                
 Japan's top bank Mitsubishi UFJ climbed 2 percent to 464 yen
and Mizuho Financial Group <8411.T> added 1.7 percent to 182 yen.
                                
 High-tech exporters also gained after optimism about upcoming
U.S. earnings and strong services sector data boosted Wall
Street, though investors remained cautious about moves in the
currency market. [.N]
                                
 The yen stood around 89.10 yen to the dollar <JPY=> in early
Asia trade. It hit an eight-month high of 88.23 yen to the
greenback last week.
                                
 Many Japanese exporters have set their exchange rate
assumptions for the dollar around 90-95 yen for the current
fiscal year to March. A stronger Japanese currency eats into
exporters' profits when they are repatriated.
                                
 Tokyo Electron <8035.T> gained 1.7 percent to 5,300 yen and
Kyocera Corp <6971.T> advanced 1.3 percent to 7,840 yen. Honda
Motor Co <7267.T> added 1.4 percent to 2,630 yen.
                                
 Fuji Heavy Industries <7270.T> advanced 3.8 percent to 329
yen after the Mainichi newspaper reported Toyota Motor Corp
<7203.T> is considering developing electric vehicles (EVs) with
the Subaru brand maker and hopes to start selling them in the
early 2010s. [ID:nT295788]
                                
 Shares of Toyota rose 0.9 percent to 3,380 yen.
                                
 But Fast Retailing slid to 13,110 yen to become the top drag
on the Nikkei 225.
                                
 Defensive sectors also fell after gaining the previous day in
the face of a decline in shares of exporter companies.
                                
 KDDI Corp <9433.T>, Japan's No.2 phone operator, shed 2
percent to 501,000 yen and NTT DoCoMo <9437.T> slipped 1.5
percent to 140,200 yen.
                                
 Kao Corp <4452.T>, Japan's largest maker of toiletries, fell
1.1 percent to 2,215 yen.
                                
 Some 925 million shares changed hands on the Tokyo exchange's
first section, roughly in line with last week's morning average.
                                
 Declining stocks outnumbered advancing ones, 999 to 529.
 (Editing by Hugh Lawson)