* Banks help Nikkei gain most in 3 weeks after Morgan, Greek deal
* Firms reporting next week rise after strong results in Japan, U.S.
* Volumes pick up, suggest more upside risk ahead of earnings
* Euro-sensitive shares such as Canon, Nikon gain on euro bounce
* Nikkei seen facing resistance seen at 10,207
By Antoni Slodkowski
TOKYO, July 22 (Reuters) - Tokyo stocks climbed to a two-week high on Friday, led by banks that leapt after Morgan Stanley's strong results and euro-sensitive issues such as Canon , up on the euro's gains after officials agreed on steps to solve Greece's debt woes.
While buying by foreigners has somewhat eased, individual investors as well as domestic institutional players dominated the market, with the Nikkei's gains capped slightly above 10,100 as traders cited concerns about the yen's renewed strength against the dollar.
"Watch volumes on banks. This is still mostly long-term investors who previously owned the stock re-establishing positions, but we're also seeing some new buyers piling into these shares," said Takashi Ohba, a senior strategist at Okasan Securities.
The Nikkei rose 1.3 percent to 10,136.77 by midafternoon and was on track for its biggest daily gain in more than three weeks. The broader Topix rose 1.1 percent to 869.637.
The benchmark on Friday jumped above near-term resistance at 10.005, marked by a tenkan line on its daily Ichimoku cloud.
"More firms posted earnings above expectations yesterday, defying worries over supply chains. That's why firms posting results next week are charging higher today," said a trader at a foreign brokerage who did not want to be quoted by name.
Canon Marketing jumped 7.2 percent after hiking its profit forecast, while Tamron Co soared 7.3 percent to 1,976 yen, at one point hitting a three week high at 2,032 yen after the company lifted its net profit outlook and Nomura Securities upgraded the stock to "buy".
"After these hikes and stronger-than-expected results from Wall Street, everyone is looking at firms reporting next week such as Toshiba and Komatsu -- on fire today on hopes for forecast hikes," the trader said.
Construction machinery maker Komatsu Ltd added 2 percent to 2,553 yen, while electrical machinery maker Toshiba Corp , boosted earlier this week by Apple Corp's strong earnings, gained 2.4 percent to 421 yen.
Most investors are long in the market, suggesting sentiment towards Japanese stocks is overwhelmingly positive.
"The Japanese equities long-short ratio reached an annual high of 12.28 on July 14. This denotes that there are over 12 times more longs than shorts in the market as institutional ownership in the region is close to annual highs," research firm Data Explorers said in a note to clients.
BANKS ADVANCE
Banks continued their relief rally into a fourth straight day, rising to a two-week high. They were led by Mitsubishi UFJ Financial Group , Japan's largest bank by assets, charging up 3.6 percent to 409 yen in very active trade, within shouting distance of its post-quake high of 419 yen reached on July 8.
An emergency summit of leaders of the 17-nation euro zone pledged on Thursday to conduct a second bailout of Greece with an extra 109 billion euros ($157 billion) of government money, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014.
Goldman Sachs said on Thursday that Japanese lenders were likely to report earnings consensus for the first quarter of this fiscal year in line or above the market's consensus, adding to banks' rally. The brokerage also said Mitsubishi UFJ is its top pick.
"People are turning a bit more bullish, because you need financials to really push the whole market higher. Forget about any decent rally when that sector lags others," said Okasan's Ohba, adding that banks' advance may help the Nikkei pop above its post-quake high of 10,207.91 heading into the earnings season next week.
Banking shares were one of the worst-hit sectors after the March 11 disaster because of speculation that they may have to forgive some of their loans to Tokyo Electric Power Co , which is still struggling with a radiation crisis at its Fukushima nuclear plant that was triggered by the disaster.
MUFG's shares are still down 7.2 percent from where they were before the earthquake. The bank shares subindex has fallen 10.1 percent since then, compared with a 3.2 percent fall in the Nikkei.
Morgan Stanley wowed Wall Street on Thursday with results that far surpassed expectations, just days after rival Goldman Sachs disappointed investors.
Canon, which obtains about one third of its sales in Europe, rose 1.6 percent to 3,795 yen and Nikon, another euro-sensitive stock, gained 1.5 percent to 1,859 yen after the euro rose to a two-week high against the Japanese currency on Thursday .
Volumes picked up with 1.3 billion shares changing hands on the main board by late afternoon, suggesting Friday's volumes may come in above this week's daily volumes around 1.5 billion shares and suggesting there is more upside potential to the market. (Additional reporting by Ayai Tomisawa; Editing by Edmund Klamann)