Nikkei ends at 2-week high; automakers gain as U.S. calls off tariffs on Mexico

* Automakers rise as investors unwind short positions - analyst

* Banks, insurers underperform following U.S. bond yields drop

* Mobile carriers sag after report on govt plan to cap cancellation fee

By Ayai Tomisawa and Tomo Uetake

TOKYO, June 10 (Reuters) - Japan's Nikkei share average ended at a two-week high on Monday, led by automakers after U.S. President Donald Trump withdrew a threat to impose tariffs on Mexican imports.

The benchmark Nikkei rose 1.2% to 21,134.42 points, its highest close since May 28.

Toyota Motor Corp (TM) jumped 1.8%, Honda Motor Co (HMC) advanced 1.5% and Mazda Motor Corp (MZDAF) climbed 1.1%. Japanese automakers have long built vehicles in Mexico, taking advantage of its cheap labour, trade deals and proximity to the United States, the world's largest auto market after China.

The United States and Mexico struck a deal on Friday to avert a tariff war, with Mexico agreeing to rapidly expand a controversial asylum program and deploy security forces to stem the flow of illegal Central American migrants. Trump had earlier threatened to impose tariffs on Monday.

"Investors are unwinding their short positions as risk sentiment shot up," said Nobuhiko Kuramochi, a strategist at Mizuho Securities. "Receding concerns about U.S.-Mexican trade issues and hopes for loose monetary policy are raising investors' risk appetite."

Financials in Japan came under pressure, however, after weak job data reinforced expectations that the U.S. Federal Reserve would move to cut interest rates.

U.S. Treasury yields tumbled, with 10-year yield hitting 2.053%, its lowest since September 2017.

That pulled down Japanese financial firms, which hunt for higher yields, with Sumitomo Mitsui Financial Group (SMFG) dropping 0.2%, while Dai-ichi Life Holdings (DCNSF) and T&D Holdings (TDHOF) and slipped 0.6% and 0.4%, respectively.

"U.S. short-term yields would stay pressured for a while, but hopes that the Fed would cut rates as a preventive measure before the economy enters a recession are cheering investors," Kuramochi said.

Mobile carriers also were sold after the Nikkei business daily reported that the government will require major operators to slash penalty fees when customers cancel their contracts.

NTT Docomo (NTDMF) dropped 1.0 percent, while KDDI Corp (KDDIF) and SoftBank Corp fell 1.6% and 1.7%, respectively.

Nissan Motor Co (NSANF) shares showed limited reaction to news that France's Renault SA and the Japanese automaker clashed over governance reform. Nissan (NSANF) closed up 0.8%.

The broader Topix ended the session 1.3% higher at 1,552.94. (Reporting by Tomo Uetake & Ayai Tomisawa; Editing by Simon Cameron-Moore & Kim Coghill)

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