TOKYO, Dec 3 (Reuters) - Japanese stocks crawled higher on Monday, boosted by surging steel shares such as Nippon Steel Corp <5401.T> and banking stocks, while exporters gained a boost from a slightly weaker yen.

The Nikkei business daily said that three steel makers -- Nippon Steel, Sumitomo Metal Industries Ltd <5405.T> and Kobe Steel Ltd <5406.T> -- planned to raise their combined domestic crude steel output.

Banks gained after their U.S. counterparts rallied on optimism over a proposed rescue for struggling homeowners to be unveiled shortly by the U.S. Treasury, and on heightened expectations for more interest-rate cuts.

"The report of the proposed rescue has given the market the sense that the worst of the subprime loan crisis may be behind us already, and that helped spur buying of banks -- which had been sold off sharply -- overseas," said Takahiko Murai, general manager of equities at Nozomi Securities.

"But here in Japan, the economy appears to be slowing a bit, so there isn't any reason to really bid the Nikkei higher."

Japanese companies reduced spending on plant and equipment in July-September from a year earlier but the drop was less than expected, and a survey of business sentiment showed manufacturers' business sentiment improved slightly in November.

A separate Reuters survey showed that manufacturers remained cautious on the outlook because of uncertainties in the U.S. economy.

Profit-taking was expected at the highs, with investors reluctant to actively buy ahead of a raft of U.S. economic indicators due out later this week.

The benchmark Nikkei <.N225> was up by 0.23 percent at 15,716.30 after edging towards 15,800 and then falling back. The broader TOPIX <.TOPX> was up by 0.52 percent at 1,539.82.

STEEL SOLID Shares in Nippon Steel, Sumitomo Metal Industries Ltd, and Kobe Steel jumped after the Nikkei report said the three companies planned to spend some 250 billion yen ($2.25 billion) in total to boost their combined domestic crude steel output capacity by 7 percent by 2012. [ID:nT335935]

Nippon Steel was up 2.6 percent at 682 yen, Sumitomo Metal Industries rose 2.1 percent to 498 yen and Kobe Steel was up 0.8 percent at 366 yen.

Banks were higher as well, with Mitsubishi UFJ Financial Group <8306.T> up 1.6 percent at 1,106 yen, and Mizuho Financial Group <8411.T> up 1.7 percent at 604,000 yen.

(Reporting by Elaine Lies) (([email protected]; +81 3 3432 8485; Reuters Messaging:[email protected]))

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