Japan's Nikkei climbs on weaker yen, highest volume in 22 months
* Nikkei rises 0.7 pct, Topix gains 1.1 pct
* Volume highest since March 2011
* Buying continues on easing hopes - analyst
* Stocks benefiting from Abe's policies gain
* JAL falls on report LDP rescinding tax breaks
TOKYO, Jan 10 (Reuters) - Japan's Nikkei average rose on Thursday in active trade as renewed weakness in the yen bolstered shares of exporters, while China's strong exports data lifted investor sentiment. The Nikkei climbed 0.7 percent to 10,652.64, taking the index deep into "overbought" territory. Its 14-day relative strength index stood at 75.83, above the 70-mark which is deemed overbought and often indicates the market is ripe for a correction in the near term. The Nikkei China 50 index, comprised of companies with significant exposure to the world's second-largest economy, gained 1.3 percent as China's exports expanded at their fastest pace in seven months in December. Shares of exporters, which have suffered from a strong yen and competition from South Korean companies, have been boosted With ongoing expectations that the central bank will ease monetary policy, major funds and retail investors continued adding Japanese stocks, analysts said. "Some funds are already taking profits from the recent gains, but there are other investors who have not caught up with the speed so they are buying," said Hikaru Sato, a senior technical analyst at Daiwa Securities, adding that the Nikkei is gradually testing the 11,000-line. The currency 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. The broader Topix index gained 1.1 percent to 889.02 in active trade, with 4.17 billion shares changing hands, the largest volume since March 2011. A senior trader at a foreign 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 1.0 and 4.0 percent. The yen was down 0.2 percent at 88.06 to the dollar on Thursday after falling 1 percent in the previous session. Isuzu Motors Ltd climbed 3.8 percent, outpacing other automakers after General Motors Co said it and Isuzu would discuss the possibility of jointly developing a next-generation pickup truck.
FOREIGN NET BUY IN 8TH WEEK 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 eighth consecutive week of net purchases, Ministry of Finance data showed. Stocks expected to be benefiting from Abe's policies, such as education providers and housing sellers, were in demand. The Nikkei newspaper has reported that the new prime minister plans to make certain gift money for grandchildren's education tax-exempt and to provide cash benefits to eligible home buyers. Tokyo Individualized Educational Institute jumped 6.4 percent, while homebuilder SxL Corp and Sanei Architecture planning were both up 3.1 percent. 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 the 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. On the other hand, Japan Airlines Co fell 4.1 percent after a media report said the ruling LDP tax research commission was considering rescinding tax breaks for the carrier, which relisted last year after it filed for bankruptcy protection in 2010.