Nikkei surges on easing hopes, set for 10th straight weekly gain

* Investors buy derivatives - trader

* Credit Suisse upgrades Japan on short-term

* Sony surges on New York building sale

TOKYO, Jan 18 (Reuters) - Japan's Nikkei share average rose more than 2 percent on Friday and is set for a 10th straight week of gains as exporters advanced on expectations the central bank will ease monetary policy aggressively next week, putting more downward pressure on the yen. The Nikkei rose 2.2 percent to 10,842.24 points by the midday break. If it ends above Tuesday's 10,879.08, it will be the highest close in 32 months. The 10-week winning streak will be the longest since 1987. The Bank of Japan and the government have agreed to set 2 percent inflation as the central bank's policy target in a joint statement likely be issued next week, although no clear timeframe has been fixed to meet the goal, a deputy economics minister said on Friday. Exporters led Friday's gains, with Toyota Motor Corp adding 2.0 percent, Honda Motor Co up 3.5 percent and Panasonic Corp climbing 3.4 percent. "There still is strong expectations on 'Abenomics'," said Hiroichi Nishi, assistant general manager of equity information department at SMBC Nikko Securities. The Nikkei has rallied about 25 percent over the past two months, starting from when incoming leader Shinzo Abe called for further policy easing, causing the yen to weaken. Nishi said that the market is increasingly encouraged by the prospect of exporters' earnings growing at a better pace in coming years. A trader at an European brokerage said investors are buying call options at a strike price at 11,000, 1.5 percent above the current Nikkei level. "Recently, derivatives buying stands out," the trader said. Credit Suisse upgraded Japan to 5 percent overweight on a short-term basis from the benchmark level, with a year-end target of 12,000 on the Nikkei. "Fiscal and monetary policy are increasingly proactive: the BoJ's balance sheet is set to expand in 2013 by more than those of other central banks, even before the potential change in the BoJ inflation target (up to 2 percent)," Credit Suisse analysts wrote in a report, adding that the BOJ has a track record of being unconventional such as buying REITs and exchange traded funds. Credit Suisse's short-term recommendations included exporters Murata Manufacturing Co and Mitsubishi Heavy Industries Ltd, and other reflationary stocks like banks, real estate stocks and life insurers. However, the brokerage added, "On a 1- to 5-year view, we are more cautious due to poor demographics, weak corporate governance and a primary budget deficit of 9 percent of GDP." On Thursday, the yen fell to a more than 2-1/2-year low of 90.14 yen to the dollar. The yen last traded at 89.82 to the dollar. A weak yen lifts exporters' overseas earnings when repatriated. "Foreign investors are becoming increasingly eager to add more Japanese stocks," said Tetsuro Ii, the chief executive of Commons Asset Management. "Abe has been successful in lifting investor sentiment. A good result must be delivered, and we still don't know about that, but the fact that he boosted investors' risk appetites is very positive," he said. The central bank's policy meeting is Jan. 21-22. On Friday, Sony Corp jumped 6.7 percent to a six-month high of 1,093 yen after it announced that its US subsidiary would sell its New York headquarters building for $1.1 billion. Sony expects a gain on the sale of $685 million, which will be recorded as operating income. Sony was the most-traded stock on the main board by turnover at the midday break. Topix added 1.9 percent to 907.00 in active trade, with 1.81 billion shares changing hands by the break.