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: Quote, Profile, Research, Stock Buzz), 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: Quote, Profile, Research, Stock Buzz), 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.