Nikkei hits 18-mth high, buoyed by brighter US mood

* Nikkei touches 18-mth high before paring gains

* Profit-taking to limit rises as Nikkei overbought

* Outlook for new quarter positive, 12,000 try seen-analyst

By Elaine Lies

TOKYO, March 31 (Reuters) - Japan's Nikkei average briefly hit an 18-month high on Wednesday before paring gains to 0.1 percent, buoyed by signs of stabilisation in the U.S. economy, with consumer confidence rebounding as optimism about the labour market rose.

But market players said that while the longer-term outlook was bright, stocks would be vulnerable to profit-taking on the final day of the quarter and the Japanese business year. The Nikkei has risen 5.2 percent in January-March and is up nearly 37 percent in Japan's 2009/10 financial year.

"Improvement in the global economy and world stock markets -- the Dow is nearly back at the level it was when Lehman collapsed -- will mean still further improvement in the Nikkei over the April-June quarter," said Fumiyuki Nakanishi, group manager at SMBC Friend Securities.

"Investor sentiment is likely to improve still more from April, when we have things like the Bank of Japan's tankan survey (of business sentiment.) We may try 12,000 in April."

The benchmark Nikkei .N225 was up 14.91 points at 11,111.48 by midmorning after rising as far as 11,138.76, its highest since early October 2008. But it remains some 1,000 points below the 12,200 level at which it closed before U.S. investment bank Lehman Brothers collapsed in mid-September 2008.

The broader Topix .TOPX rose 0.1 percent to 980.39.

The Nikkei's relative strength index (RSI) has edged over 70, above which level the market is considered overbought, but longer-term directional indicators such as MACD show the Nikkei is still on an upward trend.

"Though in the short term there are concerns about overheating, over the mid to longer term things are looking quite bright, what with expectations for Japanese earnings this year, rising trading volumes, and continued buying by foreigners," said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.

The U.S. Conference Board's index of consumer attitudes rose to 52.5 in March from an upwardly revised 46.4 in February. Analysts polled by Reuters had expected a March reading of 50.0. [ID:nN30150986]

U.S. home prices rose in January for the eighth straight month, helping bolster hopes for a sustainable economic recovery. On Monday, data pointed to gains in consumer spending.

With many investors marking time before the new quarter starts on Thursday with the announcement of the Bank of Japan's tankan quarterly survey of business sentiment, then Friday's announcement of U.S. jobless data, share-specific factors rather than broader market ones dominated play.

Shares of Alps Electric Co Ltd (6770.T) jumped 5.3 percent to 674 yen after the Nikkei newspaper said a state-backed fund would invest in a unit to be split off from the electronics components maker.

The state-backed Innovation Network Corp of Japan has decided to invest 3 billion yen ($32 million) in the unit, a venture with Tohoku University working on technology for components used in current regulators and transformers, the Nikkei said.

Toshiba Corp (6205.T) fell 1.4 percent to 481 yen after the Nikkei business daily said the company has decided to withdraw from overseas liquid crystal display (LCD) panel production and sell its Singapore plant to Taiwanese firm AU Optronics Corp for an estimated 10 billion yen. [ID:nSGE62T0JP] ($1=92.75 Yen) (Editing by Michael Watson)