Japan stocks extend gains, led by exporters

(Updates to midmorning)

TOKYO, Dec 26 (Reuters) - Japanese stocks rose on Wednesday, helped by a softening yen and relatively solid U.S. holiday spending, particularly benefiting exporters such as Canon Inc (7751.T), but gains were limited in thin holiday trade.

The U.S. stock market rallied on Monday, led by financial companies. It was closed on Tuesday for Christmas.

One notable stock was Sanyo (6764.T), which tumbled nearly 14 percent, after the struggling electronics maker said it had made illegal dividend payments worth 28 billion yen ($245 million) between 2002 and 2004. [ID:nT198529]

"Fairly strong U.S. Christmas sales are helping high-tech exporters, while the soft yen pushes up auto makers," said Katsuhiko Kodama, senior strategist at Toyo Securities.

U.S. retailers' holiday shopping season sales up to Dec. 24 rose 3.6 percent from a year earlier, at the lower end of expectations, helped by a late-season spending surge on some items, according to data released on Tuesday by SpendingPulse. [ID:nN25273]

"But sell-off pressure has become stronger as the Nikkei had risen dramatically in the last two sessions," Kodama said. "With many investors away on holidays, the Nikkei may have a hard time breaking the next target of 15,700."

As of 0040 GMT, the benchmark Nikkei average .N225 was up 0.2 percent or 24.67 points at 15,577.26. It finished Tuesday up 1.9 percent at 15,552.59, the highest close since Dec. 12.

The broader TOPIX index added 0.2 percent or 2.76 points to 1,498.79.

The dollar stood at 114.01 yen JPY= in early Asian trade, staying near Monday's peak of 114.49 yen on electronic trading platform EBS, its highest since Nov. 7.

A softer yen benefits shares of exporters as it boosts profits when earnings from abroad are brought home.

Shares of Canon rose 1.5 percent to 5,320 yen and Kyocera Corp (6971.T) gained 0.6 percent to 10,080 yen.

Automakers Toyota Motor Corp (7203.T) climbed 1.5 percent to 6,190 yen and Honda Motor Co Ltd (7267.T) added 1.1 percent to 3,860 yen.

Shares of Sanyo plunged 13.9 percent to 161 yen. (Reporting by Aiko Hayashi; Editing by Mike Miller)