* Nikkei down 0.22 pct after initially rising nearly 0.7 pct
* Banks buoyed by a rise in U.S. peers
By Shinichi Saoshiro
TOKYO, Jan 17 (Reuters) - Japan’s Nikkei share average started higher on Thursday but quickly reversed course as investors remained cautious about the outlook for riskier assets.
The Nikkei was down 0.22 percent at 20,397.75 as of 0205 GMT. Lifted by an overnight bounce on Wall Street, the index initially rose as much as 0.7 percent to 20,571.75.
The Nikkei has recovered roughly 8 percent from an eight-month low at the end of December, when massive risk aversion in global markets took a toll.
While a recovery this month in U.S. equities has helped Japanese stocks regain some footing, traders said there are few incentives for it to push much higher.
“The Nikkei is now back in the premises of the 20,500 threshold, and this appears to have invited selling from participants looking to cut some of their losses suffered during the slide in December,” said Takashi Hiroki, chief strategist at Monex Securities.
“Sentiment that was bruised last month will likely require a few more factors to recover fully, such as better Chinese economic data, easing of U.S-China trade tensions and a further weakening in the yen.”
Wall Street’s major indexes hit one-month highs overnight as strong earnings from Bank of America Corp and Goldman Sachs Group Inc boosted investor sentiment.
Banks and other financial firms tracked the rise by their U.S. counterparts.
Sumitomo Mitsui Financial Group rose 1.1 percent, Mitsubishi UJF Financial Group gained 1.1 percent and Shinsei Bank added 0.7 percent.
Nomura Holdings rose 3.6 percent and Daiwa Securities Group climbed 1.5 percent.
The Tokyo Stock Exchange’s (TSE) banking and securities sub sectors gained 0.9 percent and 2.6 percent, respectively.
The iron and steel subsector on the TSE was up 0.75 percent, supported by recent gains in iron ore prices.
Kobe Steel advanced 1.6 percent and Nippon Steel and Sumitomo Mining added 1 percent.
Trans Genic Inc climbed 4.65 percent after the biotechnology company was granted a patent for a type of genetically modified mouse used in developing treatment for illnesses caused by inflammation.
The broader Topix edged up 0.21 percent to 1,541.07. (Editing by Kim Coghill)