* Concerns about key export markets keep Nikkei in check
* Investors had also been waiting for China data
* Shippers underperform on report of slow freight activity
By Lisa Twaronite
TOKYO, Aug 23 (Reuters) - The Nikkei average pared gains after rising on broad-based bargain hunting, with lingering concerns about the economies of key export markets and the impact of a strong yen keeping advances in check.
Investors had also been waiting for the release during the midday break of a preliminary gauge of China's purchasing managers index (PMI) compiled by HSBC. The data edged up in August from the month before, though it suggested Chinese factory activity may have slowed slightly.
The benchmark Nikkei was up 0.1 percent at 8,636.78, while the broader Topix index rose 0.1 percent to 743.88.
Volume was moderate, with 832 million shares changing hands on Tokyo Stock Exchange's main board. Daily volume was on track to match last week's daily average of 1.7 billion shares.
"Domestic demand-related shares will continue to outperform, although the market isn't trading so much on Japanese fundamentals lately," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.
While the spectre of another U.S. recession has been the main worry haunting Tokyo investors in recent sessions, China is also a key market for Japanese companies such as Toshiba Corp .
Toshiba's shares were up 1.3 percent at 313 yen after the Nikkei business daily reported the firm would increase production of industrial motors to five times the current level by 2015 for the Chinese market.
WARILY TRACKING
Stock investors also continued to warily track foreign exchange markets and expect authorities to take action to stem any sharp rise in the yen . The dollar was trading in a narrow range just under 77 yen on Tuesday.
On Monday, U.S. stocks ended slightly higher after four weeks of losses, while Brent crude prices slipped on prospects that Libya's civil war will soon end, meaning a resumption of oil exports from the north African country.
Investors also continued to wait for Federal Reserve Chairman Ben Bernanke's speech on Aug. 26 at the central bank's annual gathering in Jackson Hole, Wyoming, for hints on any further U.S. easing.
The Nikkei marked its lowest close on Monday since March 15 on worries about the U.S. economy. The broader Topix index lost 1.2 percent to 742.84.
On Tuesday, shares in Chubu Electric Power Co added 2.7 percent to 1,498 yen, after the Nikkei reported that the Japan Bank for International Cooperation would provide a 100 billion yen ($1.3 billion) low-interest loan to the utility as early as this week to finance purchases of liquefied natural gas.
The sea transport subindex was down 1.1 percent, among the worst performing sectors on the board. Mitsui OSK Lines dropped 1.0 percent to 310 yen, Kawasaki Kisen shed 2.1 percent to 191 yen and Nippon Yusen fell 0.9 percent to 219 yen after the Nikkei reported that Japan's three major maritime shipping companies are bracing for huge pretax profit declines in their containership operations this fiscal year due to disappointing shipping activity on the slowing U.S. economy and sluggishness in freight charges. ($1 = 76.770 Japanese Yen) (Editing by Joseph Radford)