* Nikkei dips after dollar down on Fed statement
* But caution about more intervention supporting stocks
* Panasonic climbs on report it won't issue more shares
By Elaine Lies
TOKYO, Sept 22 (Reuters) - Japan's Nikkei stock average clawed higher on Wednesday after an earlier dip, buoyed by the dollar's edging back up towards the 85 yen level and expectations that a strong yen rise would bring Japanese intervention.
The dollar slipped earlier on Wednesday, taking the Nikkei with it, after the Federal Reserve's latest statement on the U.S. economy intensifed speculation that it would take more quantitative easing steps later this year.
But Prime Minister Naoto Kan was quoted by the Financial Times as saying that intervention in foreign exchange markets was "unavoidable" if there were drastic changes in the currency.
Japan last week carried out its first intervention in six years, and market players said hope of more was keeping shares solidly supported.
"The downside is actually quite strong, stocks could easily have fallen a lot more," said Toshiyuki Kanayama, market analyst at Monex Inc.
"Basically there's a lot less worry about the possibility of a stronger yen, since the market now expects that any trend in that direction will bring more intervention. In that sense, the psychological impact of last week's intervention is still helping."
The benchmark Nikkei was flat at the midday break, up 3.01 points at 9,605.12, after earlier falling as much as 0.6 percent. The broader Topix was also flat, at 849.82.
The dollar stood just below 85 yen after earlier falling as low as 84.78 yen.
Resistance was holding near 9,600, the level of the Nikkei's 100-day moving average, despite the benchmark narrowly closing above that level on Tuesday.
Investors had hoped that, with recent improvements in economic data, the Fed would issue a more upbeat outlook or clarify the measures it would take to stimulate demand.
But Fed Chairman Ben Bernanke has ratcheted up the central bank's focus on the threat of deflation that, combined with a grimmer take on the economy hinting at lower growth projections, appeared to clear the way for a new phase of bond buying, or quantitative easing.
The Fed also kept overnight interest rates unchanged near zero, as had been expected.
PANASONIC, SHARP
Panasonic Corp surged 3.5 percent to 1,150 yen after the Nikkei business daily said the company was abandoning the idea of issuing new shares to help finance tender offers currently underway to take total control of two group firms.
Instead, Panasonic will use on-hand liquidity and loans to complete the buyouts of Sanyo Electric and Panasonic Electric Works, the paper said.
Shares of Sharp Corp rose 1.9 percent to 862 yen after it announced plans to buy solar power company Recurrent Energy for up to $305 million to expand its footprint in the solar field.
But shares of companies with strong exposure to China, such as Komatsu and Hitachi Construction Machinery, extended losses from the previous day as a row between Japan and China over ownership of islets in the East China Sea dragged on.
Komatsu, the world's second-largest maker of earthmoving equipment, fell 1.6 percent to 1,893 yen and Hitachi Construction lost 1.7 percent to 1,821 yen.
Toyoda Gosei Co fell 3.7 percent to 1,921 yen while Denso Corp rose 0.4 percent to 2,463 yen and Aisin Seiki Co gained 0.5 percent to 2,500 yen after Goldman Sachs changed its ratings on the Toyota Motor-affiliated parts makers.
Analyst Yuichiro Isayama wrote in a report he expected Denso and Aisin Seiki to achieve the highest profit and volume growth within the parts sector, raising their ratings to "buy" from "neutral". He lowered Toyoda Gosei to "neutral" from "buy", and its target price to 2,300 yen from 3,000 yen. (Reporting by Elaine Lies; Editing by Chris Gallagher)