* Nikkei gains ground after sharp fall, as dlr/yen steady
* JAL down despite news Air France-KLM seeking stake
* Daikin jumps, to sell H1N1 virus-fighting air purifier
* Economic optimism may fade -analyst
By Aiko Hayashi
TOKYO, Sept 15 (Reuters) - Japan's Nikkei average inched up 0.2 percent in choppy trade on Tuesday, buoyed by Canon Inc and other exporters as the yen held steady against the dollar, but worries that it may only be a brief respite limited gains.
Japan Airlines failed to add to gains made the previous day despite news that Air France-KLM was joining a list of suitors seeking a minority stake in the loss-making Japanese carrier.
But Daikin Industries Ltd, the world's No.2 air conditioner maker, shot up 6 percent after it said it planned to start selling an air purifier that it claims can break down the H1N1 flu virus completely.
"The market is supported by a halt in the yen's appreciation against the dollar and as hot money is flowing into commodities and stocks encouraged by near zero interest rate policies in Japan, the United States and Europe," said Takahiko Murai, general manager of equities at Nozomi Securities.
"But players in the bond market have been factoring in the possibility that the economy might hit a second bottom going forward and optimism in the stock market about an economic recovery will also likely fade eventually."
U.S. Treasuries inched up in Asia on Tuesday, supported by light buying a day after profit-taking hit bond prices.
The benchmark Nikkei rose 18.63 points to 10,220.69, after falling 2.3 percent the day before. The broader Topix dipped 0.2 percent to 932.65.
Trade was thin and choppy, with the benchmark briefly venturing into negative territory late in the morning when the dollar briefly fell back below 91 yen.
The dollar was up 0.2 percent at 91.07 yen, after hitting a 7-month low at 90.18 on Monday. Investors fret about a stronger yen as it curbs exporters' profits when they are repatriated.
"The market clearly fell too far yesterday, and we're seeing some short covering, but this sort of drifting is likely to continue for some time," said Hideyuki Ishiguro, a supervisor at the investment strategy department of Okasan Securities.
"We need to watch and see if the yen continues to be strong. Also, some investors are waiting to see what sort of policies the new government enacts, so some may refrain from buying."
Yukio Hatoyama will take office on Wednesday after his Democratic Party's huge election win over the long-dominant Liberal Democratic Party.
The Nikkei business daily said on Tuesday that Hatoyama has decided to appoint veteran lawmaker Hirohisa Fujii as finance minister.
JAL IN SPOTLIGHT, DAIKIN JUMPS
Air France-KLM is in talks to inject hundreds of millions of dollars into JAL, a source familiar with the matter said.
Delta Air Lines and American Airlines are in separate 'early stage' talks with Japan's carrier. All hope to gain access to its route network.
Meanwhile, JAL plans to cut overseas flights and increase personnel cuts over the next three years in a bid to slash operating costs by 30 percent, Japanese media said on Tuesday.
"JAL should be trying to turn around its business by executing restructuring on its own before turning to others for help," said Murai at Nozomi Securities.
JAL lost 2.3 percent to 172 yen.
Shares of Daikin Industries jumped to 3,380 yen. It will brief on the new technology at 2:30 p.m. (0530 GMT).
NEC Corp climbed 1 percent to 303 yen after Japan's No.3 handset maker said it would take over the cellphone operations at Casio Computer Co and Hitachi Ltd as the struggling sector bands together to cut costs and survive a fast-shrinking market.
Casio shares dipped 0.4 percent to 826 yen, while Hitachi added 0.7 percent to 306 yen.
Exporters rose on short covering. Canon jumped 3.8 percent to 3,580 yen, Honda Motor Co added 0.4 percent to 2,790 yen and Toyota Motor Corp gained 0.3 percent to 3,750 yen. (Additional reporting by Elaine Lies; Editing by Edwina Gibbs)