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Nikkei turns higher but mood still cautious on U.S. deadlock

* Some exporters pressured after yen hits 8-wk high vs


* Mizuho drops after admitting officials knew of crime loans

By Ayai Tomisawa

TOKYO, Oct 9 (Reuters) - Japan's Nikkei share average erased

early losses on Wednesday, moving away from a five-week low, but

the mood stayed cautious as a lack of progress in resolving the

U.S. budget standoff weighed on investor confidence.

The Nikkei was up 0.2 percent at 13,918.49 in

mid-morning trade. Earlier on Wednesday, it fell as far as

13,751.85, just above a five-week low of 13,748.94 hit on


The broader Topix gained 0.4 percent to 1,154.76.

U.S. President Barack Obama on Tuesday refused to give

ground in a fiscal confrontation with Republicans, saying he

would negotiate on budget issues only after they agree to

re-open the federal government and raise the debt limit with no


But early on Wednesday, U.S. stock futures rebounded from a

one-month low on news that Obama will nominate Federal Reserve

Vice Chairwoman Janet Yellen, seen as a proponent of dovish

policy, as the next head of the Fed.

"Sentiment is mixed with pessimism and optimism," said

Hikaru Sato, a senior technical analyst at Daiwa Securities.

"Investors are cautious for sure, but they do not want to reduce

their holdings too much because it is possible to see a 2-3

percent spike in the index as soon as progress is made."

Sato said the Nikkei may stay below the 14,000-mark for the

time being but may not fall sharply from its current level this


Some exporters lost ground after the yen hit an eight-week

high of 96.55 to the dollar on Tuesday. A stronger yen erodes

exporters' overseas earnings when repatriated and hurts their

sales competitiveness.

Sony Corp dropped 1.8 percent.

Mizuho Financial Group fell 1.5 percent and was the

second most traded stock by turnover after the bank's officials

admitted top management knew at least three years ago about

loans to criminal groups.

In a report published on Tuesday, Credit Suisse cut its

overweight position on Japan stocks to 7 percent from 16 percent

because of such factors as weak momentum in the Japanese market

and a lack of details in the government's growth strategy

announced early this month.

But it remains overweight due to factors including its view

that the Bank of Japan will step up its quantitative easing in

the first quarter of 2014 if inflation does not meet the BOJ's

forecast. Such a move could weaken the yen to 115 yen to the

dollar, the brokerage said.

The Nikkei is up 33 percent this year, but is still down 13

percent from its May peak.