* Banks, shippers regain ground on short-covering
* Investors monitor U.S. chip stocks' performances - analyst
* Retail sector mixed, Shimamura nosedives, Takashimaya rises
By Ayai Tomisawa
TOKYO, June 26 (Reuters) - Japanese shares recovered after slumping to 3-1/2-week lows on Tuesday, as recently battered stocks rose on short-covering, despite worries about global trade tensions.
The Nikkei clawed its way back to end flat at 22,342.00, after falling 1 percent in early trade to 22,104.12, the lowest level since June 1.
Banks and shippers rose, with Mitsubishi UFJ Financial Group gaining 1.0 percent and Sumitomo Mitsui Financial Group 0.9 percent.
Shippers, hammered recently by fears demand will drop after falling commodity prices hurt, were bought back. Mitsui OSK Lines soared 2.4 percent and Kawasaki Kisen added 1.0 percent.
Following Monday's tumble for U.S. share markets, futures indexes indicated gains there on Tuesday. That caused investors in Japan to expect a rebound and Japanese markets "turned around in late trade," said Yutaka Miura, a senior technical analyst at Mizuho Securities.
At 0631 GMT, Dow e-minis and S&P 500 e-minis both were up 0.2 percent.
For the mid-term, analysts said that investors will likely stay cautious because of anxiety about expansion of a global trade war. They added that investors are focused on cyclical stocks such as the semiconductor sector.
On Wall Street overnight, technology stocks took a battering after U.S. Treasury Secretary Steven Mnuchin said forthcoming investment restrictions would apply "to all countries that are trying to steal our technology," not just to China.
"Investors are monitoring when a sell-off in U.S. technology stocks will stop as the sector is a leading indicator for economic confidence," said Nobuhiko Kuramochi, a strategist at Mizuho Securities.
He said that shares of Japanese chip equipment makers move in tandem with companies like Applied Materials.
Tokyo Electron stayed near eight-month lows and Advantest Corp around two-month lows, while U.S. chip equipment maker Applied Materials hovered around more than four-month lows.
"The timing of a correction in the U.S. chip sector will likely determine the performances of Japanese technology shares," Kuramochi said.
The retail sector was mixed. Discount clothing chain Shimamura Co nose-dived 16 percent after posting a 32 percent drop in operating profit for the first quarter.
Department store operator Takashimaya Co gained 1.8 percent after its operating profit rose 5.7 percent for the quarter ended in May.
The broader Topix advanced 0.2 percent to 1,731.07. (Editing by Richard Borsuk)