Nikkei crawls higher as oil falls, but rise limited

*Nikkei snaps two-day losing streak, up 0.6 percent

*Oil's fall eases inflation fears for now

*Resource shares take beating, trading houses hit (Adds stocks, details)

By Elaine Lies

TOKYO, Sept 3 (Reuters) - Japan's Nikkei stock average snapped a two-day losing streak on Wednesday, edging up 0.6 percent after a sharp fall in oil prices eased fears about inflation and helped Honda Motor Co and other exporters rise.

But gains were based mainly on bargain-hunting and ran out of steam in late trade, with resource shares such as oil and gas field developer Inpex Holdings Inc (1605.T: Quote, Profile, Research, Stock Buzz) taking a beating and keeping overall gains limited.

Fast Retailing rose after the retailer reported solid same-store sales growth at its Uniqlo casual clothing stores and extended those gains, albeit briefly, after saying it was planning to open Uniqlo stores in Russia and was also considering entering the Indian market.

"Oil's fall has eased worries about inflation and could help improve the economic picture somewhat, so this is a help across the board," said Toshio Sumitani, general manager at the investment information department of Tokai Tokyo Securities.

"But much of what we're seeing today is simply bargain-hunting after the market fell so sharply on Tuesday."

Other market players said that gains were likely to be temporary at best and that the longer term was gloomy, with Japanese political uncertainty after Prime Minister Yasuo Fukuda resigned on Monday likely to inhibit the foreign investors who provide some 70 percent of Tokyo market activity.

"We've had two prime ministers quit in the last year, something you don't see in most other advanced industrial nations," said Masayoshi Okamoto, chief of dealing at Jujiya Securities.

"In some ways this may put Japan in line with Thailand in terms of political instability in the minds of foreign investors, and this pessimism will limit the market's ability to rebound."

But others said the market had shrugged off Japanese politics as a factor and that moves on Wall Street -- where stocks fell on Tuesday as energy and tech shares slid -- were far more critical.

The benchmark Nikkei gained 80.12 points to 12,689.59, while the broader Topix rose 0.7 percent to 1,220.55.

OIL NEARING BOTTOM? Oil fell to near $109 in Asian trade as traders looked past Hurricane Gustav to focus on a wobbly global economy and the gloomy outlook for energy demand [O/R]. It has fallen more than $6 since Friday.

U.S. crude CLc1 was at $108.70, down $1, by 0600 GMT, its slide hammering trading firms and other resource shares.

Trading house Mitsubishi Corp lost 4.6 percent to 2,695 yen to become one of the top drags on the Nikkei 225 by volume weight. It has lost 11 percent this week.

Mitsui & Co tumbled 7.3 percent to 1,660 yen, while Marubeni Corp lost 6.1 percent to 588 yen.

Inpex Holdings lost 3.9 percent to 1.03 million yen. It has lost 14 percent this week.

"Nobody in the market believes that oil will go below $100, so its impact as a factor may start to fade over the next few days if it appears to be bottoming out," said Jujiya's Okamoto.

With the market searching for fresh macroeconomic cues, late trade centred on factors specific to individual shares.

Fast Retailing gained 2.9 percent to 11,330 yen, becoming the second greatest contributor to the Nikkei, while Komatsu Ltd slumped 7.1 percent to 2,095 yen after a brokerage downgraded the world's second biggest earth-moving equipment maker.

Mitsubishi UFJ Securities cut its rating on Komatsu to "3" from "2", citing a slowdown in demand for construction machinery and a possibility the company may undershoot its profit outlook.

Honda gained 5.1 percent to 3,530 yen and Toyota Motor Corp rose 2.1 percent to 4,850 yen. Canon Inc climbed 1.7 percent to 4,770 yen.

Trade picked up, with 1.93 billion shares changing hands, compared with last week's daily average of 1.43 billion.

Advancing shares beat declining ones by nearly two to one. (Reporting by Elaine Lies; Editing by Chris Gallagher)