* Nikkei gains 1.4 percent for the week
* Defense-related stocks tumble
* Steel shares underperform
* BOJ stands pat on policy, as widely expected
* MSCI changes rule on free-float shares
By Ayai Tomisawa
TOKYO, March 9 (Reuters) - Japanese stocks rose on Friday as tensions over North Korea eased after U.S. President Donald Trump agreed to a meeting with Kim Jong Un that could come by May, but gains were capped by caution over the coming U.S. February jobs report.
The Nikkei ended 0.5 percent higher at 21,469.20, In the morning, it was up as much as 2.4 percent to 21,884.45, the highest since March 1, on the news about North Korea.
The benchmark index gained 1.4 percent this week.
Traders said investors want to see how Wall Street performs on Friday after release of the jobs data.
Sentiment in the Japan market "was relatively vulnerable when North Korea launched missiles last year compared to asset classes in other regions, so the news that the two leaders will be meeting is very positive, at least for the short-term," said Hikaru Sato, a senior technical analyst at Daiwa Securities.
"But how much we can expect from the meeting is still up in the air," he said. "The market is still not fully convinced that he discussion will go smoothly."
On Friday, the market was underpinned by Trump's softer-than-expected stance on trade tariffs, easing trade war fears that kept investors on edge for a week.
Trump pressed ahead with import tariffs of 25 percent on steel and 10 percent for aluminium, but backtracked from his "no-exceptions" stance and exempted Canada and Mexico, and offered the possibility of excluding other allies.
Japanese steelmakers remained weak, with Nippon Steel & Sumitomo Metal dropping 0.7 percent, while JFE Holdings shed 1.5 percent.
Friday's winners included large cap stocks such as SoftBank , up 1.3 percent, and Daikin Industries, up 1.7 percent.
Insurers were also in demand, with T&D Holdings up 1.3 percent and Sompo Holdings 1.7 percent.
Defence-related stocks, which rose when North Korea fired missiles last year, lost ground.
Defence equipment maker Ishikawa Seisakusho tumbled 11 percent, firearm maker Howa Machinery sank 10 percent and health protection devices maker Shigematsu Works fell 7.2 percent.
The stock market felt little impact from the Bank of Japan's decision to keep its monetary policy steady on Friday, as widely expected.
The broader Topix rose 0.3 percent to 1,715.48.
MSCI Inc. announced conclusions from its consultation with investors on selected enhancements to the free float calculation.
It decided that stakes of above 2 percent held by insurance companies in securities included in the MSCI Japan Equity Universe will be treated as non-free float.
The threshold was previously set at 5 percent. Market participants estimated that the change could trigger about 580 billion yen ($5.44 billion) of selling by passive investors.
$1 = 106.6700 yen Editing by Richard Borsuk