TOKYO, May 15 (Reuters) - Japanese stocks pulled back from 3-1-/2-month highs on Tuesday morning, though bank shares staged a rally on hopes of strong earnings for the sector.
The Nikkei share average eased 0.1 percent to 22,845.67 in midmorning trade, after closing at the highest level since Feb. 2 on Monday. Earlier on Tuesday, it flirted with positive territory.
The broader Topix added 0.1 percent to 1,808.05.
The banking sector jumped 1.4 percent and was the best sectoral performer, with Mitsui Sumitomo Financial Group rallying more than 3 percent after it reported a 3.9 percent rise in annual net profit helped by lower bad loan costs and gains from equity holdings.
It also said it will buy back up to 1.4 percent of its own shares worth 70 bln yen.
Mitsubishi UFJ Financial Group and Mizuho Financial Group, which will report their earnings after the market close, rose 1.4 percent and 1.3 percent, respectively.
Traders said that with the Nikkei reaching resistance of 23,000, profit-taking may accelerate especially in the face of geopolitical tensions in the Middle East with the high-profile opening of the U.S. embassy to Israel in Jerusalem.
"Japanese companies' earnings were almost over and the market has mostly priced in the results. Investors may take profits from the recent rises in stocks as there are potential selling catalysts globally," said Hikaru Sato, a senior technical analyst at Daiwa Securities.
Tuesday's losers include real estate companies, with Mitsubishi Estate stumbling more than 4 percent and Mitsui Fudosan falling 1.9 percent.
Meanwhile, MSCI changed constituents for its indexes on Monday. For the MSCI Japan Index, it added CyberAgent, Kobayashi Pharmaceutical Co, SG Holdings Co and Tokyo Centry Corp. A mixed reaction followed the news, with CyberAgent declining 1.8 percent, Kobayashi falling 3.6 percent, SG Holdings rising 2.4 percent and Tokyo Century dropping 2.2 percent.
MSCI deleted Hachijuni Bank, Kyushu Financial Group and Mixi Inc. (Editing by Shri Navaratnam)