(Updates to midafternoon)

TOKYO, Nov 21 (Reuters) - The Nikkei share average rose 0.8 percent on Friday after briefly touching a three-week low, with short-covering on expectations of a Wall Street recovery defying increasingly grim economic news. Sumitomo Mitsui Financial Group (8316.T: Quote, Profile, Research) and other banks that had been sold off earlier in the week climbed on Friday on apparent bargain-hunting, while many exporters managed to cut their losses after the dollar clawed slightly higher against the yen JPY=. The mood remained dark after shares in U.S. banking giant Citigroup (C.N: Quote, Profile, Research) plunged on fears about its future, taking its total week's losses to nearly half its market value, while uncertainty over a U.S. auto bailout continued to weigh.

Market players said domestic buyers emerged, though whether they were retail investors or pension funds, which were said to have supported the market earlier this week, remained unclear.

"The news out of the United States is very bad and, speaking honestly, the environment now seems completely dark," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"But whether it's bargain hunting or what, there is buying, perhaps on expectations of a technical rebound in New York after such a swift fall."

U.S. stocks plunged again on Thursday on a flight from risk prompted by deepening economic fears. The benchmark Standard & Poor's 500 index hit its lowest level since 1997, completing the erasure of more than a decade of stock market gains. [.N]

The benchmark Nikkei was up 58.25 points at 7,761.29 after falling more than 3 percent to a low of 7,406.18 in morning trade, its lowest point in three weeks.

The broader Topix .TOPX rose 0.4 percent to 785.05.

Trade was on the light side ahead of a three-day weekend in Japan, with investors nervous about what might take place during that time. On a similar three-day weekend in September, Lehman Brothers collapsed.