Nikkei rises further off 16-mth low, JGB sales help
* Nikkei reverses course to gain, but negative for week
* Investors unload superlong debt, buy shares - analyst
* Gets technical boost after charts showed Nikkei oversold
* Next week's moves depend on US GDP data, Wall St response
By Elaine Lies
TOKYO, Aug 27 (Reuters) - Japan's Nikkei average reversed course in late trade on Friday to climb more than 1 percent at one point, buoyed after investors unloaded superlong Japanese debt to buy stocks as well as by hopes for Japanese moves to rein in the strong yen.
But investors remained nervous ahead of U.S. gross domestic product data due out later in the day.
The 20-year Japanese government bond yield JP20YTN=JBTC was poised for its biggest daily surge in 22 months, as investors including banks unloaded superlong debt to lock in profits after a recent bull run.
Ruling party powerbroker Ichiro Ozawa said on Thursday he would challenge Prime Minister Naoto Kan for the leadership next month, raising fears that the government's fiscal austerity stance may be dented and sparking selling of the superlongs. [ID:nTOE67O09A]
"Basically, we had a situation where bonds were overbought and stocks were oversold. Now investors are taking profits on bonds, and that money's flowing into shares," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"There's also the hope that there could be some kind of policy emerging later today to deal with the strong yen, and even though nobody expects much from it, this is helping to boost the Nikkei, too."
Kyodo news agency reported that Kan would hold a news conference on Friday on government steps to cope with a recent surge in the yen. [ID:nTKZ006503]
Separately, Japanese Finance Minister Yoshihiko Noda reiterated that the government would take appropriate action on currencies when necessary. [ID:nTKX006956]
But market players weren't holding their breath.
"More than anything in Japan, the most important things for the market's direction next week are the U.S. GDP figures and especially how U.S. stocks respond," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
"Even bad data might not be a problem since it could well already be factored in -- what's important is what stocks do."
The benchmark Nikkei .N225 climbed 1 percent or 85.58 points to 8,991.06 in moderate trade, moving further away from a 16-month low hit earlier this week.
It finished the week down 2 percent, its third negative week in a row and the worst such run since April.
The broader Topix .TOPX gained 1 percent to 819.62.
OVERSOLD SITUATION EASING
One key target for the Nikkei awaits at 8,697, a 61.8 percent retracement of the rally between its March 2009 low and April 2010 high.
Charts showed the Nikkei's oversold situation easing slightly, with its relative strength index (RSI) rising to 39 and moving away from the 30 mark below which a market is seen as oversold. Its slow stochastic reversed direction to rise out of oversold territory.
Over the medium term, markets are nervous about a potential policy vacuum in Japan as a result of the contest between Ozawa and Prime Minister Kan.
"It's really unfortunate that there has to be so much uncertainty at a time of a strengthening yen and when the government wants to draw up an economic stimulus plan," said Noritsugu Hirakawa, a strategist at Okasan Securities.
"This is a bad time to have a political vacuum."
A number of exporters turned positive after starting the day in negative territory.
Honda Motor Co (7267.T) rose 1.6 percent to 2,811 yen, TDK Corp (6762.T) rose 2.8 percent to 4,415 yen, and chip tester maker Advantest Corp (6857.T) gained 1.7 percent to 1,653 yen.
Shares of Parco Co (8251.T) jumped for a second straight day, rising 3.9 percent to 668 yen, after it said on Wednesday that state-run Development Bank of Japan would buy 15 billion yen of convertible bonds.
But Kirin Holdings (2503.T) fell 1.1 percent to 1,175 yen after the beer maker said it would acquire the shares it did not already own in wine maker Mercian Corp 2536.T via a stock swap.
Kirin said it would offer 0.14 share for each share in Mercian. Kirin currently owns 50.1 percent of Mercian.
Mercian shares jumped 10.1 percent to 163 yen.
Trade picked up slightly, with 1.7 billion shares changing hands on the Tokyo exchange's first section. Advancing shares outnumbered declining shares by more than 4 to 1. (Reporting by Elaine Lies; Editing by Edmund Klamann)