* Nikkei edges up, regains some of previous day's drop
* Stocks supported as yen stabilises near 2-mth low vs dollar
* Talk of buying by overseas funds, European investors
By Antoni Slodkowski and Masayuki Kitano
TOKYO, Nov 25 (Reuters) - Japan's Nikkei average rose 0.5
percent on Thursday and edged back towards a five-month high hit
earlier this week, supported by demand from overseas investors
and the yen's recent dip against the dollar.
Tokyo shares regained some of the ground lost the previous
day, when worries over tensions on the Korean peninsula prompted
investors to book profits from a recent rally.
The Nikkei edged higher in moderate trade ahead of a U.S.
holiday, helped by gains in blue-chip exporters such as Honda
Motor Co <7267.T>, Toyota Motor Co <7203.T> and Sony Corp
<6758.T>.
The Nikkei, which has rallied 9.5 percent this month, helped
by overseas investor demand for Japanese shares including
short-covering and year-end portfolio tweaking, may rise further
towards the end of the year despite some signs of overheating,
analysts said.
"December is a month when the stock market can rise in a
strange way, even if trading volume stays subdued," said Tsutomu
Yamada, market analyst at Kabu.com Securities.
The Nikkei climbed 12.9 percent in December 2009, and even
rose 4.1 percent in December 2008 -- just a few months after
global financial markets were roiled by the bankruptcy of Lehman
Brothers.
This may be due to factors such as hedge funds building new
positions after their book closings in November, and domestic
pension funds buying in anticipation of their investment plans
for the next fiscal year, Yamada said.
The Nikkei climbed 49.65 points to 10,079.76 <>. The
benchmark index hit a five-month intraday high of 10,157.97 on
Monday.
The broader Topix index edged up 0.4 percent to 869.81
<>.
There was talk that hedge funds and European investors bought
blue-chips and financials on Thursday morning, said Masayuki
Otani, chief market analyst at Securities Japan, Inc.
But talk of selling interest among Japanese institutional
investors helped limit the Nikkei's gains, Otani said.
Trading volume on the Tokyo exchange's first section totalled
1.9 billion shares, a tad lower than the average of the past five
sessions of nearly 2.0 billion shares.
SENTIMENT SOLID
The dollar dipped 0.1 percent against the yen to 83.46 yen
<JPY=>, but was holding near a seven-week high of 83.85 yen hit
earlier this week on trading platform EBS.
The dollar was supported after U.S. data the previous day
showed a fall in new claims for jobless benefits to two-year lows
and another rise in consumer spending, suggesting the U.S.
economy is nearing a self-sustaining recovery.
Some market players worry that the Nikkei's recent rally
looks overstretched.
"The Nikkei is still very solid and its sentiment remains
bullish, but Japanese shares could soon enter a phase of
correction as I think the pitch of the rise has been a bit too
rapid," said Masaru Hamasaki, a senior strategist at Toyota Asset
Management.
"From here, we want to look at the U.S. market. The market
wants to see whether U.S. consumption would pick up during the
year-end holiday season," Hamasaki said.
Trading house Sojitz Corp <2768.T> rose 0.6 percent to 169
yen in heavy trade, adding to a 9.1 percent jump the previous day
after the firm said it had formed a tie-up with Australian mining
company Lynas Corp <LYC.AX> on the supply of rare earth metals.
[]
Trading volume in Sojitz was nearly three times the five-day
average.
Major electric wire and cable manufacturer SWCC Showa
Holdings <5805.T> jumped 21.9 percent to 89 yen and Sumitomo
Electric Industries Ltd <5802.T>, a major producer of electric
wires and cables, climbed 2.0 percent to 1,102 yen after the
Nikkei business daily said the companies would start mass
production of superconducting wire next year for use in smart
power grids and car motors.
(Additional reporting by Chikafumi Hodo; Editing by Joseph
Radford)
