Nikkei hits 8-1/2-month on LDP win, U.S. fiscal hopes

* Nikkei rises 1.1 pct, Topix up 1.2 pct in active trade

* Exporters still benefit from LDP victory

* Investors take profit on utilities after Monday's rally

TOKYO, Dec 18 (Reuters) - Japan's Nikkei average edged closer to the 10,000-mark, hitting an 8-1/2-month high for a second day on Tuesday, buoyed by a landslide election win for the conservative Liberal Democratic Party, although investors took profit on power companies. Expectations that Washington will be able to resolve the 'fiscal cliff' -- a combination of spending cuts and tax increases taking effect in the new year -- also added to the positive mood in the market. The Nikkei rose 1.1 percent to 9,937.44 by the midday break, taking the index deeper into "overbought" territory, with its 14-day relative strength index at 81, well above 70 which is deemed overbought and often indicates a possible near-term correction. The benchmark Nikkei also broke above the upper band of the Bollinger Bands, a short-term momentum indicator, also signalling a possible pull back in the short-term. "At this stage, we've seen some profit-taking in utilities after a huge move they made yesterday. The yen-sensitive, LDP-trade is still in full effect, with volume remaining very good considering the quiet period of the year," a senior dealer at a foreign brokerage said. "We wouldn't be surprised to see profit-taking a little bit more than we are currently seeing." The benchmark Nikkei has risen 14.7 percent over the past five weeks, driven by yen weakness after Shinzo Abe, who was elected as the new prime minister on Sunday, called for the central bank to embark on "unlimited easing" and set an inflation target of 2 percent. The index is up 17.5 percent this year. Exporters and real estate firms, which benefit from a weaker yen and Abe's call for reflationary policy, extended gains on Tuesday. Among the exporters, Toyota Motor Corp, Honda Motor Co, Canon Inc and Hitachi Ltd were up between 1.9 and 2.2 percent, while the real estate sector added 1.3 percent. BNP Paribas said it expected the Nikkei to reach 11,000 in the first half of next year, 10.7 percent above where it ended Tuesday's morning session. Its top picks under a weak yen scenario included Toyota, construction machinery maker Komatsu Ltd, steelmaker JFE Holdings, Canon, lender Sumitomo Mitsui Financial Group and game company Nintendo Co Ltd.

REAL TEST IN H2 2013 But BNP Paribas said the real test for the new government would be in the second half of 2013. "Compiling the budget and replacing BOJ executives is one thing, but the question remains whether only economic stimulus measures and monetary easing will pull the Japanese economy out of deflation," it wrote in a note. "Concerns about deteriorating government finances may finally bring an upswing in long-term rates in the bond market and Japan could face the triple whammy of a falling currency, falling government bond prices, and falling share prices." The broader Topix index gained 1.2 percent to 817.42 in active trade after Tuesday's morning session, with volume at 11 percent above its full daily average for the past 90 trading days. Power utilities fell after rallying on Monday following the LDP victory as the party is opposed to nuclear-free policy. Kansai Electric Power Co lost 5.1 percent and Chubu Electric Power Co dropped 2.9 percent, but Tokyo Electric Power Co, which were battered by a meltdown in its Fukushima nuclear power plant after last year's earthquake, surged 13.4 percent. Shionogi & Co Ltd advanced 3 percent after the drugmaker said its joint venture with GlaxoSmithKline and Pfizer has applied to health regulators in the United States, Canada and Europe for approval of its HIV drug Dolutegravir.