Nikkei hits 10-mth closing high; M'bishi Rayon soars

* Better-than-expected U.S. and Japan data buoy confidence

* But analysts warn pace of gains rapid, more evidence needed

* M'bishi Rayon soars on merger report with M'bishi Chem

* Weaker yen lifts exporters; machine stocks up after data

By Aiko Hayashi

TOKYO, Aug 10 (Reuters) - The Nikkei average hit its highest close in 10 months on Monday, buoyed by stronger-than-expected U.S. jobs data and a report that Mitsubishi Chemical (4188.T) was in talks to acquire resin maker Mitsubishi Rayon (3404.T).

Japan's machinery orders, a leading indicator of capital spending, rose in June for the first time in four months, helping shares such as Komatsu Ltd (6301.T), though Japanese manufacturers forecast a sixth straight quarterly fall in orders in July-September. [ID:nT158527]

Market participants said the latest upbeat data reinforced investor optimism about economic recoveries in Japan and the United States, which has helped the benchmark Nikkei recoup about 50 percent from a trough marked in March.

But they warned investors were turning cautious as the market's recovery run had been too rapid and they still need to see more evidence of the economic turnaround. The benchmark index lost steam in the afternoon, ending trade off the day's highs.

"The trend for the market now appears to be to keep going up little by little, as investors have strong hopes for the economic recovery," said Naoki Koga, senior fund manager at Toyota Asset Management.

"But the pace of gains has been rapid, and I feel more and more investors are leaning toward taking a wait-and-see position. If disappointing news were to emerge, such as poor economic data or downward revisions to earnings, the market could stumble."

In light trade, the benchmark Nikkei .N225 rose 1.1 percent or 112.17 points to 10,524.26, its highest finish since Oct. 3.

The broader Topix climbed 1.3 percent to 969.24.

Market analysts said the Nikkei's next target is likely to be 10,800, though the run-up will likely be interspersed with profit-taking.

The level is where the Nikkei last saw in October and a 50 percent Fibonacci retracement from its June 2008 high and last October's 26-year low just under 7,000.

The U.S. unemployment rate fell in July for the first time in 15 months as employers cut far fewer jobs than expected and that lifted Wall Street on Friday. [ID:nN07385157]