* Nikkei up 1 pct on day, up 1.6 pct on week
* Euro-sensitive shares outperform
* Sumitomo Elec surges on battery report
* Nikkei gains may be cut short by crude -analyst
* Gains partly due to short-covering -analyst
By Antoni Slodkowski and Ayai Tomisawa
TOKYO, March 4 (Reuters) - Japan's Nikkei average climbed for a second session on Friday buoyed by Wall Street's gains on expectations for a big rise in U.S. payrolls and a weaker yen, but players said trade is set to stay choppy near-term on worries over oil.
Investors stressed that concerns about turmoil in the Middle East have receded only temporarily, with U.S. crude oil futures prices edging lower on Thursday, and warned that potential inflationary risk could hike input costs, putting earnings of Japanese firms under pressure.
Sumitomo Electric Industries led the advance, surging to a 2-½ year high after announcing it had developed a new type of rechargeable battery that could be a cheaper alternative to lithium-ion batteries in cars. It gained 8.1 percent to 1,259 yen.
"Right now people are focusing on positive signs in the U.S. economy, but even if U.S. jobs data cheers the market tonight and U.S. markets post gains, the market still hasn't forgotten the inflationary risk that comes with higher oil prices," said Hiroyuki Fukunaga, chief executive of trading information provider Investrust.
"Even if the Nikkei adds further gains, there is a potential downside as long as crude oil stays above $100," said Fukunaga.
The benchmark Nikkei ended the day up 1 percent or 107.64 points at 10,693.66. The broader Topix gained 0.7 percent to 955.59. Its immediate support looms around the index's 25-day moving average of 10,597.90.
The mood in Tokyo brightened after the number of Americans filing new claims for jobless aid hit the lowest level in more than 2-½ years and hopes were running high ahead of closely watched U.S. jobless figures for February due at 1330 GMT.
EURO-SENSITIVE STOCKS UP
Euro-sensitive stocks posted strong gains. The common currency fetched 114.93 yen by afternoon in Tokyo after hitting a four-month high of 115.18 on Thursday. Nikon Corp advanced 1.9 percent to 1,931 yen and Canon Inc gained 1.8 percent to 3,935 yen. Carmaker Mazda Motor, which has big exposure in Europe, rose 3.5 percent to 210 yen.
Glassmakers, which benefit from European demand, also gained.
Asahi Glass added 3.9 percent to 1,155 yen and Nippon Electric Glass rose 1.3 percent to 1,366 yen.
"More short-covering after a big drop on Wednesday was also an important factor pushing the Nikkei higher today," said Hideyuki Ishiguro, a supervisor of investment strategy at Okasan Securities.
Open interest, or total outstanding positions in futures contracts, decreased together with a recovery in the cash market, also suggesting continued short-covering.
Open interest hit the highest level in two years on Feb. 24 at 365,990, and has been falling since then, hitting 346,603 on Thursday.
"Less aggressive buying in the afternoon points to investors staying vigilant, and trade will likely be choppy in the short term," said Ishiguro, adding that volatile trade without clear direction will continue for at least a week with investors nervously awaiting further developments in the oil-rich Middle East.
Volume was moderate, with 2.3 billion shares changing hands on the Tokyo stock exchange's first section, in line with the last week's average daily volume.
Advancing shares outpaced declining ones by 968 to 518. (Editing by Michael Watson)