(Updates with Nikkei levels)

TOKYO, Jan 21 (Reuters) - Japan's Nikkei share average

erased early gains to trade flat on Tuesday, as traders

assessed the possibility of U.S. President Donald Trump imposing

new tariffs on global firms.

By 0154 GMT, the Nikkei was trading flat at 38,901.44. The

index rose as much as 0.86% earlier in the session following

overnight news that Trump stopped short of imposing new tariffs.

The broader Topix also reversed gains to edge 0.1%

lower at 2,708.68.

"Investors who bought stocks after news that Trump would not

immediately impose tariffs on imported products but they sold

those stocks off immediately after another news about Trump

imposing those tariffs soon," said Hiroyuki Ueno, chief

strategist at Sumitomo Mitsui Trust Asset Management.

"The market is expected to remain volatile like this for a

while as investors monitor outcome of the negotiations on the

tariffs. The political factor will become a key for the

equities."

Trump said on Monday that he was thinking of imposing 25%

tariffs on imports from Canada and Mexico, with the announcement

potentially coming on Feb. 1, fuelling concerns that Japanese

exports could also be targeted.

Shares of technology start-up investor SoftBank Group

fell 0.53% to drag the Nikkei the most.

Transport index shed early gains to trade flat.

Mazda Motor ( MZDAF ) fell 2.15% and Honda Motor ( HMC ) slipped

0.27%.

Investors also await the Bank of Japan's policy decision,

due on Friday.

"Investors are seeking to know the pace of the BOJ's rate

hike," said Yugo Tsuboi, chief strategist at Daiwa Securities.

"They are now facing uncertainties over Trump

administration's policy and the BOJ's rate path," he said.

The BOJ is expected to raise interest rates in a move

that would lift short-term borrowing costs to levels unseen

since the 2008 global financial crisis.