Nikkei rises as exporters gain on renewed yen weakness

* Nikkei rises 0.7 pct, Topix gains 1 pct

* Isuzu jumps on possible GM joint development

TOKYO, Jan 10 (Reuters) - Japan's Nikkei average advanced on Thursday as renewed weakness in the yen bolstered shares of exporters, which have rallied over the past two months on expectations that the central bank would ease its monetary policy more aggressively. The Nikkei rose 0.7 percent to 10,652.84 in midmorning trade, taking the index deep into "overbought" territory. Its 14-day relative strength index stood at 75.8, above the 70-mark which is deemed overbought and often indicates the market is ripe for a correction in the near term. Shares of exporters, which have suffered from a strong yen and competition from South Korean companies, have been boosted has been weakening since Shinzo Abe, the new prime minister, called on the Bank of Japan to adopt a bolder policy to revitalise the economy, including setting an inflation target of 2 percent. During that period, the Nikkei has rallied 23 percent. A senior trader at a European bank said some people remained sceptical of the rally, and many were buying derivatives instead of taking big positions in stocks. "It's sort of a slow burn but I actually prefer this. It's a much nicer rally where you have this 50, 60 basis points move higher than this crazy 3 percent, 4 percent day when we squeeze higher," he said. "It's a much higher quality rally because it gives people time to work and think of what they want to do." The trader said many investors were looking at call options with a strike price of 11,000, some 3.3 percent above the Nikkei's current level. Among exporters, Toyota Motor Corp, Honda Motor Co , Daikin Industries and Nikon Corp rose between 1.4 and 3.3 percent. The yen was down 0.3 percent at 88.190 to the dollar on Thursday after falling 1 percent in the previous session. Isuzu Motors Ltd climbed 4.6 percent, outpacing other automakers after General Motors Co said it and Isuzu would discuss the possibility of jointly developing a next-generation pickup truck. The broader Topix index gained 1 percent to 887.42. A change in sentiment towards Japan after Abe's call has perked up foreign investors' interest in Japanese equities. Foreign investors bought a net 178.9 billion yen ($2 billion) worth of shares in the week ended Jan. 5, the eight consecutive week of net purchases, Ministry of Finance data showed. BNP Paribas, however, recommended that investors book profits before the central bank's policy meeting on Jan. 21 and 22, saying gains were likely to be limited in the short term. "We are expecting a short-term upside to be limited: those with exposure can implement an overlay by staying long and selling an out of the money call as a yield enhancement strategy; those without exposure can buy a call spread when the market consolidates; and we would not object to investors who want to unwind part of the positions in order to lock in profits," the bank said in a research note.