Nikkei gains for 3rd day, U.S. economic steps eyed

*Nikkei rises 3 pct, now up 10 pct over 3 days

*Attention on dollar moves against yen, earnings

*Market also awaits U.S. economic steps (Adds stocks, details)

By Elaine Lies

TOKYO, Oct 21 (Reuters) - Japan's Nikkei average rose 3.3 percent on Tuesday for a third day of gains as Canon Inc (7751.T: Quote, Profile, Research, Stock Buzz) and other exporters climbed on a weaker yen, with attention focused on action the United States might take to shore up its economy. Investors also honed in on news about company results as Japan's earnings season moves into higher gear.

Takeda Pharmaceutical (4502.T: Quote, Profile, Research, Stock Buzz) jumped after the top Japanese drugmaker upgraded its April-September earnings guidance, citing stronger than expected sales and the softer yen. [ID:nT307697] Energy-linked firms and trading houses gained as oil rose over $1 on expectations of production cuts and forecasts of cold weather in the U.S. northeast, as well as hopes that the worst of the financial crisis may be over [O/R].

The benchmark Nikkei has advanced 10 percent in the last three trading days, but still is down 17.4 percent this month.

Market players were torn between hopes for U.S. policy moves and fears that it may take time to come up with constructive and specific steps.

"The market wants some kind of concrete economic steps, jointly if necessary, and Bernanke's comments have raised hopes that something will be forthcoming," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

"But this could take time given the upcoming U.S. presidential election and with Bush leaving office in January."

Federal Reserve Chairman Ben Bernanke told Congress on Monday that another wave of government spending may be needed as the U.S. economy limps through what could be an extended period of subpar growth. [ID:nN20514882]

Current G8 chair Japan has agreed with the United States to work closely to make a planned world summit on the financial crisis a success, the Japanese government's top spokesman said on Tuesday. [ID:nT338799]

Market participants said much of the day's activity centred on day traders and others carrying out short-term trades.

"There are some nerves about what might happen in New York later today, and this may be limiting rises," said Masayoshi Okamoto, chief of dealing at Jujiya Securities.

Like Tokyo, New York has rebounded for several sessions, and some market players said they wondered how long this would go on, noting that the United States is also in its earnings season.

The benchmark Nikkei .N225 gained 300.66 points to 9,306.25. The broader Topix rose 3.2 percent to 956.64.

DOLLAR, EARNINGS, OIL

The dollar was fetching around 101.51 yen.

Canon rose 5.5 percent to 3,460 yen and Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) climbed 6.8 percent to 2,435 yen. Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) rose 5 percent to 3,790 yen.

Takeda gained 6 percent to 4,920 yen, its rise typical of the intense market focus on earnings.

"The market is extremely nervous about earnings right now, although most investors are expecting more downward revisions than upward," Chibagin Asset's Osakabe said.

Oil's gains sent oil and gas field developer Inpex Inc (1605.T: Quote, Profile, Research, Stock Buzz) soaring 9.6 percent to 683,000 yen.

Mitsubishi Corp (8058.T: Quote, Profile, Research, Stock Buzz), Japan's largest trading house, gained 6.2 percent to 1,848 yen and fellow trading house Mitsui & Co (8031.T: Quote, Profile, Research, Stock Buzz) gained 7.5 percent to 1,074 yen.

Trade was light on the Tokyo exchange's first section, with 2.1 billion shares changing hands, compared with last week's daily average of 2.4 billion.

Advancing stocks outpaced declining ones by more than 3 to 1. (Reporting by Elaine Lies; Editing by Edwina Gibbs)