Nikkei gains over 1.5 percent on Fed hopes, German ruling optimism
* Investors favour stocks with less exposure to strong yen * Cyclicals, miners gain as Fed stimulus eyed * Steelmakers strong on sign of industry prices bottoming out By Sophie Knight TOKYO, Sept 12 (Reuters) - Japan's Nikkei share average rose 1.5 percent on Wednesday morning, buoyed by hopes of further stimulus from the U.S. Federal Reserve and expectations that Germany's highest court will give the green light for the euro zone's bailout fund. Investors bought stocks such as those of mining companies which are seen as gaining the most should the Federal Reserve announce a third round of quantitative easing at its meeting on Thursday to reinvigorate the world's top economy. Demand was also high for shares of companies focused on the domestic economy that are shielded from the effects of a stronger yen, which is seen as a likely consequence of an easing of U.S. monetary conditions by Fed chairman Ben Bernanke. "If the Fed eases, there's a high chance the yen will shoot up, so we're seeing a continuing trend for domestic stocks as well as some rebounds for stocks that were heavily sold off yesterday," said Hiroyuki Fukunaga, CEO of Investrust. "I think Bernanke is usually quite eager to not crush hopes or expectations, but if he does fail to announce QE3 it will probably make the dollar firmer and that may well be a plus for the Japanese market," he added. The Nikkei advanced to 8,935.53 , rising above its 14-day moving average at 8,891.90, while the broader Topix climbed 1.1 percent to 740.30. Trading was relatively light on the main board, though, with volume at 48.6 percent of its full-day average over the last 90 sessions. Investors have been wary of making big moves ahead of a German constitutional court ruling on the legality of the European Stability Mechanism (ESM) later on Wednesday, which could threaten the euro zone's safety net if it is not passed. "I expected less buying today but it seems that people are already expecting Germany to give the ESM the go-ahead, which would alter the course of the euro and lead to a softer yen," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities. "However, I think the upside is still heavy as we're mostly seeing short-covering." Steelmakers performed well after Baoshan Iron and Steel , China's largest listed steelmaker, said it will roll over its September steel prices to October after three straight months of cuts, a move some analysts said was aimed at stabilising a market hit by weak demand. The iron and steel sub-index gained 1.3 percent, with JFE Holdings Inc advancing 2.7 percent. BOJ MAY NOT BUDGE In another positive sign, Japan's core machinery orders, which help gauge the strengthen of capital spending, rose 4.6 percent in July, outstripping a median market forecast of a 1.5 percent gain, in a sign that post-tsunami reconstruction in the northeast of the country is bolstering demand. However, other recent domestic economic indicators have been disappointing, with the government cutting its economic outlook for the first time in nearly a year at the end of August, leaving some hoping for further easing from the BOJ at its next policy meeting on Sept. 18 and 19. "The BOJ can't allow the yen to stay at 77 yen to the dollar, and right now the Fed's decision could push it down as far as 75," said Fukunaga of Investrust. The yen was holding near a 3-1/2 month high of 77.70 hit on Tuesday. However, with a national election looming, political pressure on the central bank has slacked, leading many investors to think it will stand pat on policy. The BOJ bought 25.5 billion yen worth of exchange-traded funds on Tuesday to support the market, a common move when the Topix index falls below 1 percent. The index then pared gains shortly before close, ending 0.7 percent down. Mitsui High-tec Inc advanced 4.2 percent to a four-month high after the producer of integrated circuit leadframes raised its earnings guidance for the first half ended July, citing increased demand for energy-saving products and an insurance payment from last year's Thai floods. The company also raised its full-year dividend forecast to 10 yen from 3 yen. Elsewhere, Oki Electric Industry Co Ltd slid 13 percent after the telecommunications company said on Tuesday it will likely make a loss of 30.8 billion yen, or around $400 million, due to improper accounting at its Spanish unit over six years, a much larger amount than the 8 billion yen estimated by the company in August.