(Corrects paragraph 12 to show Nikkei's quarterly gains are 22 percent, not 12 percent)
* Nikkei up on hopes that recession easing, but sluggish
* Profit-taking emerges after sharp gains on Thursday
* Nippon Oil up on report of likely Iraq oil deal
* Suzuki Motor up on possible VW cooperation deal
By Elaine Lies TOKYO, June 26 (Reuters) - Japan's Nikkei stock average clawed 0.2 percent higher on Friday, after stronger-than expected earnings from a U.S. retailer buoyed hopes that the U.S. economic recession may be easing.
Nippon Oil Corp jumped over 4 percent after a newspaper reported that it and other Japanese companies are in the final stage of talks with Iraq to win the development contract for Iraq's huge Nassiriya oilfield.
Suzuki Motor climbed after a source familiar with the matter said Volkswagen is exploring a potential cooperation deal with Suzuki as a way to boost its expertise in the area of ultra-small cars.
Though market analysts had predicted sharp gains prior to the opening, rises were sluggish in thin trade as investors moved to lock in profits after the average posted its best day in a month on Thursday, rising 2.2 percent.
The Nikkei gained 23.21 points to 9,819.29 after briefly moving into negative territory, while the broader Topix rose 0.3 percent to 922.68.
"The market climbed yesterday mainly on demand factors and not on fundamentals, and investors are moving to take profits ahead of the weekend," said Hiroaki Osakabe, fund manager at Chibagin Asset Management.
But sharp losses were unlikely after the Nikkei on Thursday climbed back above its 25-day moving average, which provided support throughout the benchmark's three-month rally from March. The 25-day moving average now comes in around 9,700.
Better-than-expected earnings from U.S. retailer Bed Bath & Beyond helped revive a sense that the U.S. recession may be starting to ease.
"Everyone recognises that the market is heading for recovery, and this is likely to be verified when Japanese companies start reporting results next month. The mood is improving," said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.
He added that while the Nikkei appeared to be gaining some strength from so-called window-dressing -- selling stocks with large losses and buying those with strong gains to boost portfolio performance -- ahead of the end of the quarter next week, this was not the only reason for its rises this week.
"It's mainly macroeconomic fundamentals -- the road ahead for the economy appears to be pretty bright."
The Nikkei has gained roughly 22 percent this quarter after posting an 8.5 percent loss in the January-March quarter.
SUZUKI RACES AHEAD
Suzuki surged 5.5 percent to 2,195 yen. A Suzuki spokesman said he could not comment on the reported tie-up with Volkswagen because he had not heard of talks about any such deal.
Nippon Oil climbed 4.2 percent to 576 yen after the Yomiuri newspaper said it, oil and gas field developer Inpex and plant engineering firm JGC Corp, were likely to win the contract.
Iraq's Oil Minister Hussain al-Shahristani said on Thursday that the Oil Ministry has selected a company to develop the Nassiriya oilfield and has sent its choice to the cabinet for approval, but he declined to identify the company.
Inpex rose 1.9 percent to 755,000 yen and JGC rose 2.3 percent to 1,571 yen.
Pioneer Corp jumped 10 percent to 296 yen after J.P.Morgan raised its investment rating on the loss-making electronics maker to "neutral" from "underweight", citing progress in restructuring and improving domestic demand for car navigation systems.
"We think Pioneer is turning the corner both in terms of its earnings and finances," J.P. Morgan analyst Yoshiharu Izumi said in a note to clients.
Lawson Inc rose 2.4 percent to 4,260 yen after the Nikkei business daily reported that the convenience store chain's group recurring profit likely rose 3 percent from a year earlier to about 12 billion yen for the March-May quarter.
Trade was thin, with 938 million shares changing hands on the Tokyo Exchange's first section, compared to last week's morning average of 1.25 billion.
Advancing shares outnumbered declining shares by 986 to 556. (Reporting by Elaine Lies; Editing by Edwina Gibbs)