* Banks draw support from Citi results
* Apple, IBM stocks lose steam but earnings solid -analysts
* Fed easing hopes supporting stock markets -fund manager
By Aiko Hayashi and Chikafumi Hodo
TOKYO, Oct 19 (Reuters) - Japan's Nikkei average advanced 0.4 percent on Tuesday with banking shares gaining after stronger-than-expected results from Citigroup, but the yen's continued strength weighed on the market.
Investors were reluctant to trade actively before the Group of 20 nations meeting later in the week and the U.S. Federal Reserve's policy meeting on Nov. 2-3, keeping market turnover low, analysts said.
Expectations that the Fed will ease further have sparked a sell-off in the dollar in recent weeks and the subsequent rise in the yen has pressured Japanese stocks.
But the market has also found support from the expectation that easing will boost liquidity in financial markets and help the U.S. economy. Media reports about solid earnings at home, such as those of Mitsubishi Heavy, also helped bolster the market.
"There's the possibility that news will run its course after the Fed decision, but until then, stocks will likely hover around these levels," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"If semi-decent earnings continue to come in line with expectations, that will also help support the market."
The benchmark Nikkei closed up 40.96 points at 9,539.45, while the broader Topix rose 0.4 percent, or 3.21 points, to 833.73.
The yen edged down 0.15 percent against the dollar to 81.38 yen, but still close to a 15-year peak of 80.88 hit last week and a record high of 79.75 set in 1995.
"The Nikkei ran out of steam in the afternoon. It struggled to extend gains as the yen's basic strength has put some pressure on stocks," said Masaru Hamasaki, a senior strategist at Toyota Asset Management.
"But strong shares prices in Europe and the United States should keep supporting the Nikkei around 9,500," Hamasaki said.
Technical charts show the Nikkei has strong support at its 25-day moving average, now at 9,495, while its next upward targets are its recent peaks around 9,700, marked this month, and 9,800, hit in July.
Banking shares climbed, with top lender Mitsubishi UFJ Financial Group gaining 1.6 percent to 388 yen and Mizuho Financial Group climbing 2.6 percent to 120 yen.
Shares of exporters were mixed, with Sony Corp up 1.5 percent at 2,698 yen and Canon Inc falling 0.5 percent to 3,835 yen.
U.S. stocks gained on Monday as Citigroup jumped after reporting its third straight quarterly profit, beating forecasts and boosting optimism that the banking sector is on track to recover even amid a tepid economic expansion.
Shares of Apple Inc and International Business Machines Corp slid in after-hours trading after reporting results, but market analysts in Tokyo said their earnings were solid and the stock falls were due to the fact the news had run its course, and they saw little impact on Japanese stocks.
Bank of America, reports on Tuesday. Last week JPMorgan Chase and Co's profits beat estimates.
"Volume picked up a bit today, but basically the market has been extremely thin since Monday as investors don't want to take positions ahead of a slew of events such as the G20 meeting, FOMC and U.S. mid-term elections," said Takashi Ohba, a senior strategist at Okasan Securities.
"There is no clear direction now, but the Nikkei is solid despite shares of Apple falling after-hours today," Ohba said.
Trade picked up slightly on the Tokyo exchange's first section, with about 1.63 billion shares changing hands, after posting on Monday its lowest volume since late September, just below 1.50 billion shares.
Advancing stocks and decliners almost evenly matched at 788 to 710.
Mitsubishi Heavy rose 0.7 percent to 306 yen after the Nikkei business daily said the company would likely report its first-half operating profit more than doubled on the year to around 60 billion yen ($738 million), thanks to brisk sales of automotive components and engines.
Shares of Sumitomo Chemical jumped 3.1 percent to 366 yen after Mitsubishi UFJ Morgan Stanley Securities upgraded the stock to "outperform" from "neutral". The brokerage also lifted its target share price to 410 yen from 330 yen. (Editing by Joseph Radford)