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* Nikkei and Topix both climb 2.4 pct * Sumitomo Metal surges 5.9 pct, confirms Alaska gold mine * Megabanks advance; Gree falls By Dominic Lau TOKYO, March 27 (Reuters) - Japan's Nikkei average hit its highest closing level on Tuesday since a massive earthquake and tsunami triggered a radiation crisis a year ago, buoyed by indications the U.S. Federal Reserve may keep its supportive monetary policy. The benchmark Nikkei rose 2.4 percent, or 236.91 points, to 10,255.15, while the broader Topix also climbed 2.4 percent to 872.42. "The market was very healthy indeed in the run-up to the earthquake last year. Japan is the premier play on global growth. The world was growing and Japan should have been the biggest beneficiary and it got hit by the earthquake," said Nicholas Smith, Japan strategist at CLSA. "We are not quite back there yet ... We have moved up a long way in a short while. There are people who are worried that we are overheated but we are not overvalued. The value in the market is still absolutely incredible." The earthquake and tsunami hit Japan on March 11 last year. The Nikkei has surged 21.3 percent so far this year on a run of robust U.S. economic data and easing programmes by global central banks, taking its 14-day relative strength index to "overbought" territory at 73.7. The index is on track for its best quarterly performance since the second quarter of 2009, when the index surged 22.8 percent. But Japanese equities were still considered undervalued compared with their global peers. The Topix carries a 12-month forward price-to-book ratio of 0.98 compared with the S&P 500's 2.0 and STOXX Europe 600's 1.4, Thomson Reuters Datastream data showed. Blue-chips bounced back on Tuesday from a recent pullback in Tokyo markets, with Honda Motor Co up 3.5 percent, Toyota Motor Corp adding 3.6 percent, Canon Inc gaining 3.5 percent and investment bank Nomura Holdings climbing 4.1 percent. Sumitomo Metal Mining Co jumped 5.9 percent after it said it had confirmed a new gold deposit containing 40 tonnes at its mine in Alaska. "Certainly the market has been caught a little bit short," said Stefan Worrall, director of equity cash sales at Credit Suisse in Tokyo. "There were quite a lot of shorts that have emerged in the last few days on caution that we might have a pullback." The Nikkei lost 1.2 percent last week and eked out modest gains on Monday. Just as the global rally looked to have run out of steam, comments from Fed Chairman Ben Bernanke on Monday reinforced the view that further easing from the central bank may be possible. Nearly 2.27 billion shares changed hands on the main board, up from 1.13 billion shares on Monday. BANKS UP, GREE OFF Japan's megabanks were also in demand on Tuesday, with Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group up between 2.5 and 4.3 percent. Jun Yunoki, equity strategy analyst at Nomura, said domestic passive funds were expected to buy in order to reinvest dividends, which was likely to push the index higher. "If we take pre-disaster foreign buying as neutral weight, we are not closing in yet on that amount of buying," Yunoki said. "I think foreign buying will continue as they are still slightly underweight in Japanese equities." Bucking the overall market trend on Tuesday was mobile gaming operator Gree Inc, which shed 1.9 percent. It extended the previous day's sharp loss after a magazine report cited a government official as saying an investigation could begin in April or May over additional charges for special items in its games.