* Automakers rally on growing expectation of monetary easing
* Honda jumps 6.2 pct, Toyota up 3.5 pct, Nissan rises 5.5 pct
TOKYO, Dec 19 (Reuters) - Hopes that Japan's central bank would obey incoming prime minister Shinzo Abe's call to print more money and weaken the yen sparked a sharp rally on Wednesday among auto stocks, lifting Tokyo's market to its biggest gain in over a year.
Honda Motor led the gains, rising 6 percent, while Nissan Motor climbed 5.5 percent and Toyota Motor rose 3.5 percent. The three stocks helped push the benchmark Nikkei Stock Average up 2.4 percent to above 10,000 for the first time in almost nine months.
The Bank of Japan is likely to ease monetary policy at the close of its policy-setting meeting this week and sources close to the bank say it may also consider doubling its target for inflation next month in response to increasing pressure from Abe after his Liberal Democratic Party swept back into power with a landslide victory in parliamentary elections last Sunday.
"There are expectations for the incoming Abe government, monetary policy easing and a supplementary budget, which leads to greater expectations for a weaker yen," said Koji Endo, an auto analyst at Advanced Research.
"And now, it seems like the U.S. fiscal problems will be sorted. A weaker yen and a steady U.S. economy are two biggest positive factors for auto stocks."
Japan's auto exporters are particularly sensitive to fluctuations in the yen, which rose to a record high of 75.311 yen to the dollar in October 2011. A stronger yen reduces what car makers and their suppliers earn overseas and hurts their ability to match competitors such as South Korea's Hyundai Motors on price.
Since Abe called for the BOJ to undertake bolder steps including "unlimited easing", the yen has fallen about 5 percent. That in turn has boosted the appeal of automakers' shares.
The yen was quoted at 84.33 to the dollar on Wednesday but still far from the 100 yen level around which Japanese carmakers would like to see the Japanese currency trade.
Endo said with many Japanese electronic firms struggling, investors were focused on auto stocks more than ever.
"Investors, especially foreign institutional investors are starting to feel that they are in trouble if they don't have Japanese stocks. Key institutional investors, excluding hedge funds, have yet to catch up on the market, and they will start buying," he said.
The transport equipment index has rallied 25.9 percent over the past five weeks, outpacing a 17.3 percent rise in the benchmark Nikkei.
Signs of progress in negotiations to avoid spending cuts and tax increases in the United States in the so-called fiscal cliff also lifted sentiment in the Tokyo market. The United States is one of the biggest markets for Japanese carmakers.
But some analysts said the weak yen might not be enough to help the Japanese auto industry. Morgan Stanley MUFG downgraded auto parts makers Aisin Seiki Co Ltd and Calsonic Kansei Corp on Friday.
"A weak yen is positive, but we do not see industry earnings growing while non-U.S. autos demand remains uncertain and costs to offshore production rise," Morgan Stanley MUFG wrote in a note.
In terms of valuations, auto and parts makers carry a 12-month forward price-to-earnings ratio of 10.4, much cheaper than the broader market's 12.6, according to Thomson Reuters Datastream.
Of the Big Three, Nissan has the cheapest valuation, with its 12-month forward P/E of 8.1 versus Honda's 10.5 and Toyota's 11.6.
Taizo Ishida, lead portfolio manager of the Matthews Japan Fund at Matthews International Capital Management in San Francisco, had Toyota as his number four top holding as of Nov. 30.
"This year, we made sort of a tactical change in the beginning of the year, saying, the yen is too strong, this is a problem, meaning we didn't have much in exporters, for example, Toyota. We didn't have much in weak-yen, big-cap type of companies," he told Reuters late last month.
"Toyota, the company came out of three, four years of miserable problems," such as recalls, the March 2011 earthquake and Thai floods, he said.
"I don't think I had Toyota for a long time, but the fundamentals are definitely coming together." (Additonal reporting by Lisa Twaronite; Editing by Sanjeev Miglani)