Japan's Nikkei trims gains on Iran missile test

*Nikkei pares much of its gains after Iran missile test news

*Investors fear a jump in oil prices

*Banks hold firm on eased credit worries (Adds stocks and comments)

By Taiga Uranaka

TOKYO, July 9 (Reuters) - The Nikkei stock average pared much of its earlier gains to end up 0.2 percent on Wednesday after a report that Iran had test-fired missiles, raising fears about a jump in oil prices on heightened tensions in the region.

The Japanese stock market sharply rose in the morning, led by financial shares such as Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research), after comments from the U.S. Federal Reserve helped ease credit worries.

But the missile test news, which came in the afternoon, prompted many investors to lock in profits, with the Nikkei hovering near the previous day's close in the last half hour of trading.

"The dollar had been strong and oil prices had been falling, but the missile firing will rekindle inflationary concerns," said Fumiyuki Nakanishi, group manager of the investment information department at SMBC Friend Securities.

The benchmark Nikkei .N225 ended up 19.03 points at 13,052.13, after rising as much as to 13,284.65. The broader Topix was up 0.2 percent at 1,285.53.