* Trading firms, steel, metal stocks up on commodity prices
* Banks jump helped by bullish views on US financial sector
* Recently battered sectors gain, defensive sectors slip
* Volume and turnover rise, both above 20-day averages
* Yen weighs but optimism about earnings supports -analyst
By Aiko Hayashi
TOKYO, Oct 7 (Reuters) - Japan's Nikkei average rose 1.1 percent on Wednesday, with shares of steel and metals companies rising in the wake of a jump in commodity prices, while banks climbed on continued optimism about the U.S. financial sector.
A rate hike the previous day from Australia, the first G20 country to raise interest rates since the onset of the financial crisis, has underscored for many that the global economy is on the mend, spurring gains in energy and metal prices.
Big gainers also included electronics conglomerate Hitachi which soared on a two-notch rating upgrade.
Goldman Sachs upgraded this week the U.S. large-cap bank sector, saying share prices for companies in the industry did not reflect their earnings power. The news has helped boost both U.S and Japanese financial shares.
"An increasing number of brokers are turning bullish on U.S. financial stocks and that's prompting investors to adjust positions in Japanese financials that had lagged behind," said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.
The Nikkei rose 1.1 percent to 9,799.60, pulling away from an 11-week intraday low of 9,628.67 hit the previous day. Last week, the index shed 5.2 percent, its worst weekly loss in about three months.
The broader Topix added 1.6 percent to 885.69.
Trading volume and turnover on the Tokyo exchange's first section picked up. Some 2.3 billion shares changed hands, compared to the 20-day average of around 2 billion shares.
But worries about a stronger yen were capping gains, said Yumi Nishimura, deputy general manager at Daiwa Securities SMBC.
"Even so, investors don't really want to sell too aggressively as there's no serious concern about earnings both in Japan and the United States ahead of the upcoming earnings season and the markets could move higher," she said.
The yen stood at 88.52 yen to the dollar, edging back to an eight-month high of 88.23 yen hit on trading platform EBS last week.
"The dollar at around 88 yen is not a cause for surprise but the question is how long this trend will continue," said Hiroaki Osakabe, fund manager for Chibagin Asset Management.
"Everybody is talking about 85 yen or maybe even 80 yen," he said, adding that the yen's recent rise against the dollar was a reason why Japanese equities have lagged behind their global peers.
BANKS SHINE
Most gains in financials stocks were due to short-covering, market players said.
Japan's top bank, Mitsubishi UFJ Financial Group, jumped 5.1 percent to 499 yen and Mizuho Financial Group added 1.6 percent to 187 yen.
Chuo Mitsui Trust Holdings surged 8.3 percent to 341 yen after Nomura Securities raised its rating on the stock and lifted the target price to 450 yen from 380 yen, saying the bank was less likely than rivals to seek new capital.
Metal stock Dowa Holdings jumped 6.6 percent to 547 yen while steelmaker JFE Holdings rose 4 percent to 3,020 yen.
Hitachi shot up 7 percent to 292 yen after Mizuho Securities upgraded its rating to a "1" from a "3", saying the company was highly likely to achieve its earnings targets partly due to a strong performance for its hard disk drive business.
Murata Manufacturing, an electronic parts maker, advanced 3.2 percent to 4,170 yen after its president told Reuters in an interview that orders in the quarter just ended were stronger than expected.
But Aeon Co lost 1.1 percent to 821 yen after Japan's second-largest retailer posted a 40 percent decline in its first-half operating profit, hit by weak consumer spending and after analysts complained about a lack of disclosure at its analysts' meeting.
Advancing stocks outnumbered declining ones by more than 3 to 1. (Additional reporting by Masayuki Kitano; Editing by Edwina Gibbs)