TOKYO, April 7 (Reuters) - Japan's Nikkei average edged higher on Thursday, rising as much as 1.1 percent at one point, but the market ran out of steam due to the crisis at Tokyo Electric Power Co's Fukushima Daiichi nuclear plant and worries over lost output.
Strength in overseas markets the previous day encouraged solid buying, with investors covering their positions after the Nikkei posted losses in the last two sessions.
"It was about time to see some corrective buying, with investors who have gone short this week covering their positions ahead of tomorrow's SQ," said Takashi Ohba, a senior strategist at Okasan Securities, referring to Friday's settlement of futures and options, known in Japan as the special quotation or "SQ".
"But today's buying is largely technical with investors trying to square off their positions. Many players want to keep their positions as neutral as possible because there are many uncertainties, but the market is more likely to test the downside."
The benchmark Nikkei average was up 0.5 percent at 9,629.59 by mid-morning. It briefly rose 1.1 percent to an interday high of 9,687.18.
The broader Topix index rose 0.6 percent to 844.91.
Japanese shares are under pressure as many investors refrain from chasing them on rallies despite the yen's fall.
The yen was near an 11-month low of 122.55 yen to the euro and a half-year low of 85.54 yen against the dollar .
The positive effect of a weaker yen on shares of Japanese exporters was limited due to concerns over bottlenecks and disrupted supply chains.
"The market is increasingly feeling that the TEPCO nuclear problem will take a long time. People are also unsure about production losses. It's likely that the market could test the Nikkei below 9,000 again," Oba said.
Shares in TEPCO rose as much as 5.3 percent to 355 yen on Thursday shortly after the opening in highly volatile trade that saw prices move in and out of negative territory.
Shares of the power company fell to a record low of 292 yen on Wednesday due to concerns that it was likely to face huge damages payments over the crisis at its stricken Fukushima power plant.
Engineers pumped nitrogen gas into a crippled nuclear reactor at the plant on Thursday, trying to prevent an explosive buildup of hydrogen gas as the world's worst nuclear disaster in 25 years stirred atomic safety debate and inspections in the United States.[ID:nL3E7F62A5]
Shares in Elpida Memory gained 5 percent to 1,116 yen after the company said it had developed a 4-gigabit DRAM chip for smart phones, joining bigger rival Samsung Electronics as the only producers of the large capacity power-saving memory chip for smart phones. [ID:nL3E7F63HD]
Overseas investors shifted back to net buying of Japanese equities to the tune of 144.7 billion yen ($1.69 billion) in the week to April 2, after having sold a net 13.2 billion yen the prior week, according to data by the Ministry of Finance.
Between March 13 and 19, the week right after the quake and tsunami, foreigners logged record net buying of Japanese equities of more than 890 billion yen.
($1 = 85.475 Japanese Yen) (Reporting by Antoni Slodkowski and Chikafumi Hodo; Editing by Michael Watson)