* Domestic-demand sensitive shares rise * Abe's victory widely-expected, but positive for market - analysts * Exporters underperform as dollar trades below 100 yen By Ayai Tomisawa TOKYO, July 22 (Reuters) - Japan's Nikkei share average rebounded on Monday after Prime Minister Shinzo Abe's ruling bloc and its coalition partner regained control of the upper house in an election, boosting hopes for a sustained economic recovery. The Nikkei rose 0.7 percent to 14,694.95 in mid-morning trade, after rising as high as 14,770.02 at the open. Of the Topix's 33 subsectors, 27 are in positive territory, with domestic-demand sensitive shares leading the gains. "Hopes that Abe will pull the country out of deflation are lifting retail shares on expectations that their sales will rise on increasing consumption," said Hiroyuki Fukunaga, chief executive of Investrust. "People's interests are shifting to earnings at the same time." ABC-Mart Inc rose 1.7 percent, J.Front Retailing Co gained 0.7 percent, while Fast Retailing Co added 1.9 percent. "ABC-Mart and J.Front Retailing may rise further in the mid-term, but Fast Retailing's gains may be limited as investors had overly high expectation" on its results, Fukunaga said, noting that the company did not raise its full-year profit outlook. Fast Retailing, which reported its third-quarter results for the year through August earlier this month, left its operating profit outlook unchanged at 147.50 billion yen as well as sales of 1.103 trillion yen. Exporters underperformed as the dollar is trading below 100 yen, with Toyota Motor Corp down 0.2 percent, Nissan Motor Co falling 0.1 percent and Toshiba Corp shedding 0.2 percent. The Topix gained 0.3 percent to 1,215.98. STRUCTURAL REFORM EYED "Abe's victory was widely expected, but it gives a positive lead to the market as it raises expectations that legislation will pass more easily and he can focus on reviving the economy," said Takuya Takahashi, a strategist at Daiwa Securities. He said that foreigners are encouraged that the Abe administration will be the first stable government since popular Junichiro Koizumi left office in 2006. "The likelihood that there will be no national election for the next three years is positive. What investors are looking for is a stable government and they are watching how Abe can tackle deflation," Takahashi said. Abe's victory in Sunday's elections means an end of "twisted parliament" in which the opposition controls the upper chamber, allowing him to focus on structural reforms to end stagnation in the world's third-largest economy. Public broadcaster NHK said early on Monday that Abe's Liberal Democratic Party (LDP) and its partner, the New Komeito party, had won at least 74 of the 121 seats up for grabs in the 242-seat upper house. Abe's fiscal expansionary policy, coupled with the Bank of Japan's aggressive monetary stimulus, has pushed the benchmark Nikkei up around 40 percent this year, while the yen has fallen 15 percent against the dollar. Market observes said the prospect of the Nikkei extending gains stably after the election will depend on whether Abe can implement drastic structural reform. Jesper Koll, director of equities research at JP Morgan in Tokyo, said that Abe seems to be fully aware that although monetary and fiscal stimulus may deliver a strong cyclical upturn, a true structural upturn requires fundamental changes in Japan's regulatory framework. "For a permanent rise in returns and productivity, the factors of production-land, labor, capital-need to be re-allocated. This is what the 'third arrow' of Abenomics is about," Koll wrote in a note.