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Nikkei edges up, investors cautious as focus turns to Fed outcome

By Tomo Uetake

TOKYO (Reuters) - Japan's Nikkei average came out of a holiday on a firmer footing on Tuesday, playing catch-up to news that Lawrence Summers had dropped out of the race to head the Federal Reserve as markets brace for the U.S. central bank's decision on its stimulus programme.

The benchmark Nikkei rose 0.3 percent to 14,441.54 in mid-morning trade after adding 0.1 percent to 14,404.67 on Friday. The markets were closed on Monday for a public holiday.

A Russian-brokered deal that has averted U.S. strikes on Syria also supported sentiment.

The broader Topix advanced 0.5 percent to 1,191.20.

"Summers' withdrawal from the candidate is positive for equity markets as it supports expectations that the pace of tapering will be more gradual," said Kenichi Hirano, a strategist at Tachibana Securities.

Summers was seen as more prone to winding down stimulus than the new front-runner, Fed Vice Chairwoman Janet Yellen, bolstering expectations that the Fed will keep its current accommodative path for a longer period.

"The Nikkei is likely to stay subdued as investors will refrain from taking positions until the Fed meeting is over," Hirano added.

Analysts said the market is focused on when and by how much the Fed will scale back its $85 billion monthly stimulus at its September 17-18 meeting.

Stainless steel maker Nippon Yakin Kogyo Co Ltd soared 21.1 percent and was the sixth-most traded stock by turnover on the main board, buoyed by continued euphoria over the 2020 Summer Olympics. It helped make the iron and steel sector subindex the biggest gainer on Topix.

On the downside, the information and communication companies subindex was the worst performer as mobile phone companies suffered from worries about stiffer competition after the industry leader NTT DoCoMo Inc said last week it will start to offer Apple's iPhones.

KDDI Corp fell 4.8 percent while SoftBank Corp dropped 2.1 percent. DoCoMo shares weren't spared either, falling 2.2 percent on speculation its offer of iPhones could unleash a price war with its competitors.

Other notable movers were drugmaker Daiichi Sankyo Co Ltd, which dropped 5.9 percent after its subsidiary in India, Ranbaxy Laboratories Ltd, saw its third plant hit by U.S. import ban on safety concerns.

The benchmark Nikkei is up 39 percent this year, underpinned by the Japanese government's aggressive monetary and fiscal stimulus, but is still down 9 percent since its May peak.

(Reporting by Tomo Uetake; Editing by Shri Navaratnam)