* Both Nikkei, Topix hit fresh 2-year highs
* Kobe Steel plunges 22 pct
* Seven & i surges on report of likely strong profit
TOKYO, Oct 10 (Reuters) - Japan's Nikkei share average moved closer to a 21-year high on Tuesday after a three-day weekend as expectations for continued strength in the U.S. economy supported sentiment, but Kobe Steel's shares plunged when it said it had fabricated data.
The Nikkei rose 0.6 percent to 20,823.51 after hitting a fresh two-year high of 20,823.66 and moving closer to a 21-year pinnacle. A move above the 20,952.71 level hit in June 2015 would mark its highest level since 1996.
Investors returned from Japan's national holiday on Monday to see the yen had weakened over the weekend as strong U.S. wage data was seen as a sign of potentially rising inflation, hinting at Federal Reserve rate hikes and a strengthening dollar.
"The market expects a December rate hike, and the Nikkei has been stabilised as the dollar-yen remains strong," said Yutaka Miura, a senior technical analyst at Mizuho Securities.
Kobe Steel, Japan's third-biggest steelmaker, nosedived after revealed it had fabricated data to falsely show its products met customer specifications.
The company said on Sunday that about 4 percent of the aluminium and copper products it shipped from September 2016 to August 2017 were falsely labelled as meeting customer specifications.
Exporters were steady after the dollar popped up to a near three-month high of 113.440 on Friday thanks to robust U.S. wages data before pulling back on North Korea concerns. It was flat at 112.690 yen during Asian trading hours.
Toyota Motor Corp gained 1.6 percent while Mitsubishi Motors and Tokyo Electron both rose 1.9 percent.
Seven & i Holdings advanced 2.5 percent after the Nikkei business daily said that the convenience store operator was likely to post 6 percent growth in operating profit for the March-August period.
Insurance stocks lost ground, with MS&AD Holdings tumbling 3.9 percent and Sompo Holdings diving 4.7 percent.
(Reporting by Ayai Tomisawa; Editing by Eric Meijer)