* Kuroda's signal on bold easing limits decline * Asian investors more confident on Japan - BNP Paribas * Softbank rises after announcing Gungho tender offer By Ayai Tomisawa TOKYO, March 26 (Reuters) - Japan's Nikkei average weakened on Tuesday after a senior euro zone official said the Cyprus rescue could be a template to deal with other banking problems in the region, though the fall was capped by hopes for Japan's bold monetary easing. The Nikkei dropped 0.2 percent to 12,516.92 at the midday break after falling as much as 0.7 percent earlier. While the market opened weak, stocks came off lows after Bank of Japan Governor Haruhiko Kuroda signalled bold monetary easing. He said that the central bank will seek to push down yields across the curve by purchasing longer-dated government bonds, underscoring the BOJ's resolve to expand its balance sheet more aggressively to beat deflation. Investors are growing increasingly confident about Japan stocks "backed by hopes for the BOJ's aggressive easing and public spending," said Kyoya Okazawa, Tokyo-based head of global equities at BNP Paribas. Okazawa, who visited investors in Hong Kong recently, said investors show rising interest in Japanese equities, and are less optimistic about other markets, which face risks including inflationary pressure. "Still, long-only investors are underweight on Japan, but the Japanese market will likely stay strong until the upper house election in the summer. After that, investors will likely seriously question how (Prime Minister) Abe is going to boost the country's growth through his growth strategy," Okazawa said. A senior dealer at a foreign bank in Tokyo said of Tuesday trading "We have seen some pretty good flows. We do have a bit of profit-taking in some blue chips. I guess we are 50-50 (in buy and sell orders)." However, he said some selling was coming from long-only investors. Exporters with high exposure to Europe were sold on profit-taking. Nikon Corp fell 1.7 percent, Mazda Motor Co dropped 3.8 percent and Sony Corp shed 2.7 percent on worries over European debt issues. The Cyprus bailout deal is forcing large uninsured depositors and bondholders to bear heavy losses, and Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, said the Cyprus bailout represented a new model for resolving banking crises in the currency bloc. On Tuesday, gains in index heavyweight Softbank Corp helped limit market declines after its mobile unit said it will launch a tender offer to make game developer Gungho Online Entertainment Inc a consolidated subsidiary. Softbank climbed 2.5 percent and was the most traded stock on the main board by turnover. Gungho sank 5.8 percent. The broader Topix index dropped 0.1 percent to 1,045.90 with 1.48 billion shares changing hands. Volume was on track to be close to last week's average 3.06 billion shares. JAPANESE STOCKS SEEN EXPENSIVE The benchmark Nikkei has rallied 45 percent since mid-November, when Shinzo Abe unveiled proposals, during his election bid, for expansionary fiscal and monetary policies to revive the economy. "At the end of May 2012, over 20 percent of Japanese stocks qualified as Deep Value. That number has since dropped to just 5 percent, making Japan the second-most expensive region on this basis behind the U.S.," Societe Generale wrote in a note. "Japan is now going to have to demonstrate improving fundamentals to warrant further upside," it added Japanese equities carry a 12-month forward price-to-earnings ratio of 14.1, a level not seen since August 2010 and compared with U.S. S&P 500's 13.6, data from Thomson Reuters Datastream showed.