* Nikkei dips in and out of positive territory
* Correlation between yen, stocks seen stronger - analyst
TOKYO, Sept 1 (Reuters) - Japan's Nikkei average danced in and out of positive territory on Tuesday with market players saying that moves in dollar/yen were largely driving the market.
Some market players said that they believed that the correlation between moves in currency markets and Tokyo stocks had grown stronger after Sunday's election victory for the Democrats as some party officials have said Japan should start thinking of a strong yen as in its interest.
The yen gained on Monday, helping to push the Nikkei lower.
"The yen moves are driving the market. Auto trading programmes linking the dollar/yen moves and the Nikkei have likely set in," said Fumiyuki Nakanishi, manager at SMBC Friend Securities.
Sunday's landslide victory for Yukio Hatoyama's opposition Democrats ends a half-century of almost unbroken rule by the Liberal Democratic Party in Japan and breaks a deadlock in parliament.
"But all of that is happening when the market entered a natural corrective phase, with the Nikkei having gained nearly 50 percent from its March lows. It's not as if the view on a recovery for the global economy had changed," Nakanishi said.
In late morning trade, the benchmark Nikkei was up 0.5 percent of 49.81 points to 10,542.34.
It fell 0.4 percent on Monday, hitting an 11-month high at 10,767.00 at one stage as the market struggled to interpret the results of the election.
The broader Topix slipped 0.4 percent to 961.76.
In Asian trade, the dollar was largely flat at around 93 yen.
Big gainers included TCM Corp, which rocketed 30 percent after excavator maker Hitachi Construction Machinery Co said on Monday it would make the forklift maker a wholly owned subsidiary through a share swap.
TCM soared to 182 yen, while Hitachi Construction slipped 1.6 percent to 1,859 yen.
Among exporters, Canon Inc rose 0.3 percent to 3,580 yen.
Energy-linked firms fell after oil prices fell further below $70 a barrel on Tuesday, after sliding almost 4 percent the previous day when fear of a curb in Chinese bank lending dented optimism about an economic recovery and a pick-up in energy demand.
Trading houses Mitsubishi Corp shed 1.6 percent to 1,855 yen and Mitsui & Co fell 1.5 percent to 1,194 yen. (Reporting by Aiko Hayashi; Editing by Edwina Gibbs)