Nikkei pares gains after China factory activity report
* Nikkei up 0.2 pct, Nikkei China 50 index largely flat
* Banks in demand as some investors seek underperformers
TOKYO, Jan 23 (Reuters) - Japan's Nikkei stock average eased off from a two-week high on Thursday morning after a survey showed activity in China's manufacturing sector contracted in January for the first time in six months. The Nikkei was up 0.2 percent at 15,858.57 at the midday break. The index earlier rose as high as 15,958.58 to a two-week peak and near the 16,000-mark it had crossed last month for the first time in six years. But the disappointing flash Markit/HSBC Purchasing Managers' Index prompted investors to take profits. "They are in the middle of a reform right now to fix shadow banking ... to open markets to the private sector. In the middle of those reforms, those PMI numbers are going to be quite bumpy," said Kyoya Okazawa, head of global equities and commodity derivatives in Tokyo at BNP Paribas. The Nikkei China 50 index, which comprises 50 companies with significant exposure to the world's second-largest economy, was largely flat. Among those companies, heavy construction machinery maker Komatsu Ltd inched up 0.1 percent, while Hitachi Construction Machinery Co Ltd eased 0.6 percent. The broader Topix index was little changed at 1,299.26 in relatively active trade, with volume at 57 percent of the full daily average for the past 90 trading days. Banks were in demand as some investors sought underperformers, while a bullish report on Mizuho Financial Group from Goldman Sachs this week also boosted the sector. Mizuho, the most traded stock on the main board, advanced 2.5 percent. Mitsubishi UFJ Financial Group was the third-most traded, up 0.4 percent, while Sumitomo Mitsui Financial Group added 0.5 percent. The banking sector gained 50 percent last year, underperforming a 57 percent rise in the Nikkei - the benchmark's best annual rise since 1972. The JPX-Nikkei Index 400, a recently introduced gauge comprised of companies with a high return on equity and robust corporate governance, was steady at 11,730.37 on Thursday morning.