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Japanese shares track global peers higher, but virus woes cap gains

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TOKYO, July 26 (Reuters) - Japanese shares rose on Monday, as they caught the tailwind from a bounce in global peers on positive corporate earnings, though gains were curbed by investor concerns that a surge in domestic COVID-19 infections could dampen economic recovery.

Nikkei average rose as much as 1.77% in early trade after a four-day weekend that marked the opening of Tokyo Olympics, before shedding a part of the gains to trade 1.30% higher at 27,906.28.

The broader Topix was up 1.31% at 1,929.34, after having risen 1.74% earlier in the session. During the long weekend in Japan, all three major U.S. stock indexes closed at record highs.

"The market is strong during the U.S. and European trades. As soon as Tokyo opens, it turns softer, which underscores the cautious mood here. With coronavirus cases rising, investors sell into rally rather than bidding up," said Tomoichiro Kubota, senior market analyst at Matsui Securities.

Tokyo reported 1,763 cases on Sunday, up 75% from a week ago.

Motor maker Nidec fell 1.1% after some investors were disappointed by the firm not bumping up its annual profit outlook despite the solid rise in quarterly profit.

"The results were pretty good, but its share reaction suggests shares that have very high investor expectations may have hard time advancing gains," Matsui Securities' Kubota said.

Elsewhere, Tokyo Steel Manufacturing jumped more than 15% after the company boosted earnings forecast sharply.

That helped to boost other steelmakers' shares, with industry leader Nippon Steel up 5.7% and JFE Holdings rising 6.8%.

Toray gained 5% after Nikkei business daily reported that the chemical company's quarterly profits soared. The firm will announce its earnings next week.

SoftBank Group bucked the trend to fall 0.4%, hit by worries about the firm's exposure to Didi and other Chinese tech firms as China intensifies crackdown on them. (Reporting by Hideyuki Sano, Editing by Sherry Jacob-Phillips)