* Volatility may persist for some time - fund manager
* Short-term investors seen unwinding 'sell' positions in Japan stocks
TOKYO, Feb 15 (Reuters) - Japan's Nikkei share average rose significantly on Thursday morning as investors bought back recently-battered stocks after U.S. markets climbed overnight, shrugging off stronger-than-expected inflation data.
The Nikkei advanced 1.6 percent to 21,497.83 in midmorning trade, after tumbling to a four-month low on Wednesday and briefly dipping below its 200-day moving average.
All sectors but utility were in positive territory, with financial stocks and exporters outperforming, downplaying a strong yen trend.
The dollar dropped below Wednesday's nadir of 106.725 yen and fell to as low as 106.42 yen, its weakest level since November 2016.
"If you are a logical investor, you'd buy when you think stocks will rise and you'd sell when you think stocks will fall. But today's trade is not based on logic," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Short-term investors like overseas hedge funds were shorting Japanese stocks and futures since late January. They have their trades programmed to sell Japanese stocks when U.S. stocks fell. But since U.S. stocks rose overnight, they had to close such positions as there was a risk of losing."
Japanese stocks have seen volatile trade in recent weeks, after hitting 26-year highs last month.
Some traders say that repercussions from Wall Street's recent tumble have not undermined Japanese stocks' attractive valuations.
"Share price movements have become more volatile in recent weeks amid the repricing of inflation risk and rising U.S. Treasury yields," said Jeremy Osborne, investment director at FIL Investments (Japan) Limited.
"While volatility may persist for some time, the recent selloff is more of a reaction to the rapid rise since last autumn rather than any deterioration in fundamentals," he said.
On Thursday, banking stocks soared, with Mitsubishi UFJ Financial Group rising 2.6 percent and Mizuho Financial Group gaining 1.8 percent.
Insurers also rallied, with Dai-ichi Life Holdings jumping 4.1 percent and T&D Holdings surging 3.0 percent.
Exporters gained ground, with Panasonic Corp rising 1.3 percent, Tokyo Electron by 4.0 percent and Honda Motor Co by 1.1 percent.
The broader Topix advanced 1.3 percent to 1,723.93. (Editing by Richard Borsuk)