Nikkei rises on hopes for euro-zone plan

* Bank shares rise after report of plan to contain European debt

* Benchmark retakes 8,500 but still below 25-day moving average

* Dividend-related buying provides support

By Lisa Twaronite

TOKYO, Sept 27 (Reuters) - The Nikkei average climbed on Tuesday from the previous day's two-and-half year closing low, rising in tandem with other risk assets on a report that a plan to contain Europe's sovereign debt contagion is in the works.

CNBC reported on a plan to leverage money from the European Financial Stability Facility to buy sovereign debt to help European banks, and which may involve the European Investment Bank.

"Relief about the possibility that there might be a solution to Europe's debt problems is boosting sentiment today and the Nikkei regained the 8,500 level, but it needs to sustain its gains above this level for investors to gain confidence," said Toshiyuki Kanayama, market analyst at Monex Inc.

The Nikkei added 1.8 percent to 8,524.21, gaining after two losing sessions and retaking the 8,500 level it surrendered on Monday. It remains well below its 25-day moving average of 8,725.

The broader Topix index rose 1.6 percent to 740.73.

Dividend-related buying is providing additional support for shares. Tuesday is the last day for investors to buy many Japanese stocks and still get dividends on them for the April-September half year.

"Those who have doubts that stock prices will rise much further have little buying incentive, but most stocks are still paying dividends and that appeals to many investors," said Kenichi Hirano, operating officer at Tachibana Securities.

Shares of major banks rose on hopes that a plan is in the works to prevent Europe's debt crisis from spreading to the global financial system.

Mizuho Financial Group added 1.8 percent to 113 yen, Mitsubishi UFJ Financial Group rose 2.7 percent to 338 yen and Sumitomo Mitsui Financial Group was up 2.8 percent at 2,135 yen.

Engineering firm JGC Corp jumped 4.5 percent to 1,955 yen, bouncing off a 6-month low, after brokerage CLSA upgraded the stock to a "buy" from "outperform" on expectations that the company will beat its own order and profit forecasts from the year ending March 2012. (Additional reporting by Vikram Subhedar)