Nikkei hits 8-1/2-month high on LDP win, volume highest since March
* Nikkei rises 1.0 pct, Topix up 1.1 pct in active trade * Volume highest since March * New money coming in - trader * Exporters benefit from LDP victory * Investors take profit on utilities after Monday's rally By Ayai Tomisawa TOKYO, Dec 18 (Reuters) - Japan's Nikkei average neared the 10,000-mark, hitting an 8-1/2-month high for a second day on Tuesday, lifted by expectations of aggressive monetary easing after the conservative Liberal Democratic Party swept back to power. Hopes that Washington will be able to resolve the 'fiscal cliff' -- a combination of spending cuts and tax increases taking effect in the new year -- also added to the positive mood in the market. The Nikkei rose 1.0 percent to 9,923.01 after advancing to as high as 9,967.24, with exporters leading the gains as the yen fell further. The gains took the index deeper into "overbought" territory, with its 14-day relative strength index at 80.64, well above 70 which is deemed overbought and often indicates a possible near-term correction. About 3.42 billion shares changed hands on the main board, the highest level since March 9. That compares with last week's average daily volume of 2.29 billion shares. Traders said that a falling yen has attracted more buyers into the equity market on expectations that exporters will be reporting better earnings for the coming year. "The gains are not just from short-covering. New money is coming in, so although some correction may be seen, investors will probably keep buying as they don't want to miss out the opportunity to buy," said Hideyuki Okoshi, general manager at Chibagin Securities. The benchmark Nikkei also broke above the upper band of the momentum indicator Bollinger Bands, signalling that a correction could be ripe. "At this stage, we've seen some profit-taking in utilities after a huge move they made yesterday. The yen-sensitive, LDP-trade is still in full effect, with volume remaining very good considering the quiet period of the year," a senior dealer at a foreign brokerage said. "We wouldn't be surprised to see profit-taking a little bit more than we are currently seeing." The Nikkei has risen 14.6 percent over the past five weeks, driven by yen weakness after Shinzo Abe, who was elected as the new prime minister on Sunday, called for the central bank to embark on "unlimited easing" and set an inflation target of 2 percent. The index is up 17.4 percent this year. The dollar edged up 0.2 percent to 84.07 yen, nearing a high of about 84.50 yen that had been hit on Monday, the greenback's strongest level against the yen since April 2011. Exporters were in demand on Tuesday, with Toyota Motor Corp , Honda Motor Co, Canon Inc and Hitachi Ltd up between 1.8 and 3.3 percent. Real estate firms, which stand to benefit from Abe's call for a reflationary policy, extended gains, with Mitsubishi Estate Co rising 1.2 percent and Mitsui Fudosan Co gaining 1.8 percent. BNP Paribas said it expected the Nikkei to reach 11,000 in the first half of next year, 10.9 percent above Tuesday's closing price. Its top picks under a weak yen scenario included Toyota, construction machinery maker Komatsu Ltd, steelmaker JFE Holdings, Canon, lender Sumitomo Mitsui Financial Group and game company Nintendo Co Ltd. REAL TEST IN H2 2013 But BNP Paribas said the real test for the new government would be in the second half of 2013. "Compiling the budget and replacing BOJ executives is one thing, but the question remains whether only economic stimulus measures and monetary easing will pull the Japanese economy out of deflation," it wrote in a note. "Concerns about deteriorating government finances may finally bring an upswing in long-term rates in the bond market and Japan could face the triple whammy of a falling currency, falling government bond prices, and falling share prices." Tetsuro Ii, the chief executive of Commons Asset Management, said that he hopes the LDP-led government can introduce more measures to help businesses grow in the long-term such as reducing corporate tax. "I believe that the LDP's victory means a lot to the market. But we are only interested in investing long-term in companies which have competitiveness, regardless of the state of the economy, so we are not immediately buying stocks like cement makers or Sharp Corp," Ii said. The broader Topix index gained 1.1 percent to 816.85. Power utilities fell after rallying on Monday following the LDP victory as the party is opposed to nuclear-free policy. Kansai Electric Power Co shed 4.5 percent and Chubu Electric Power Co dropped 3.5 percent, but Tokyo Electric Power Co, which were battered by a meltdown in its Fukushima nuclear power plant after last year's earthquake, surged 17.3 percent. Shionogi & Co Ltd advanced 4.4 percent after the drugmaker said its joint venture with GlaxoSmithKline and Pfizer has applied to health regulators in the United States, Canada and Europe for approval of its HIV drug Dolutegravir.