* Foreigners buy Japan stocks for 11th day * BoFA Merrill Lynch recommends banking, autos * Short-term investors buy Japan stocks - analyst By Ayai Tomisawa TOKYO, March 21 (Reuters) - Japan's Nikkei share average rose 1.4 percent to a 4-1/2 year high on Thursday, bolstered by the U.S. Federal Reserve's pledge to maintain stimulus and expectations of further monetary easing by the Bank of Japan's new leadership. The Nikkei rose 182.03 points to 12,650.26, its highest level since early September 2008, helped by gains in exporters. On Wednesday, Haruhiko Kuroda, an advocate of aggressive easing, took the central bank's helm along with deputies Kikuo Iwata and Hiroshi Nakaso. "The market expects easing at its first meeting (on April 3-4) under the new leadership, so until then, the market should stay strong," said Toshihiko Matsuno, a senior strategist at SMBC Friend Securities. The Nikkei has gained 21 percent this year on widely expected aggressive policy easing after Prime Minister Shinzo Abe's campaign to pull the country out of persistent deflation and bolster growth. The yen has weakened 11 percent during the same period, boosting hopes that exporters' overseas earnings will be lifted when repatriated. The Topix gained 1.2 percent to 1,058.39. On Thursday, Sony Corp gained 3.9 percent and was the most-traded stock on the board by turnover, while Canon Inc added 2.2 percent and Panasonic Corp rose 1.9 percent. Analysts noted investors were relieved after the Fed said it will retain its $85 billion monthly bond-buying programme to support the economy, pushing the dollar to 96.13 yen, within striking distance of a 3-1/2 year high of 96.71 reached last week. The yen last traded at 95.86 yen against the dollar. While many analysts are bullish about the Nikkei's outlook, they said the Japanese market is still vulnerable to a rise in the yen. "Excessive worries about a bailout on Cyprus have receded, but we still need to stay alert on currency moves as we were caught off-guard by the yen's rise the other day (when the controversial Cyprus bailout plan rattled markets)," SMBC Friend's Matsuno said. "We were reminded that the yen could be bought when investors want to avoid risk." Cypriot leaders held crisis talks on Wednesday to avoid a financial meltdown a day after the country's parliament rejected a levy on bank deposits, which had been proposed over the weekend by European Union officials. FOREIGN BUYING CONTINUES Amid strength in the Japanese market, Japan equity weighting by global institutional investors was 15 percent overweight for March, up for the third month while investors have confidence in Japan's corporate earnings outlook, according to a survey conducted by Bank Of America Merrill Lynch. "In sector allocations, Japan investors' overweight position on banks increased again to stand at a very high level, though they are even more heavily-weighted toward autos, which continues to be the most popular sector," equity strategist Naoki Kamiyama wrote in the report. The banking sector has outperformed the overall market by rising 30 percent this year, while the transport equipment sector has gained 25 percent. On Thursday, foreigners placed net buy orders for Japanese stocks for the 11th straight day before the market opened. But some analysts say that those who pour in money in to the market before the cautiously awaited BOJ's policy meeting on April 3-4 are mostly short-term investors. "Short-term buyers like hedge funds are chasing both futures and cash markets higher on hopes for monetary easing while they plan to sell after the news is out," said Shun Maruyama, chief equity strategist at BNP Paribas. "Long-term investors would not buy at this timing."