Nikkei hits 7-mth high close, tracks China rebound

   * Nikkei up 1.5 pct, biggest daily gain in almost 3 weeks
 * Blue-chip exporters chased by bargain hunters
 * Nikkei up 3.8 pct in December, still down 1.7 pct in 2010
 * Volume low with foreigners absent ahead of holidays
 By Antoni Slodkowski and Ayai Tomisawa
 TOKYO, Dec 21 (Reuters) - Japan's Nikkei average rose to its
highest close in seven months on Tuesday in holiday-thinned
trade, as a rebound in Chinese equities encouraged investors to
pick up shares after a brief pull-back the day before.
 Investors shrugged off a slightly stronger yen against the
dollar and aggressively added blue-chip exporters.
 Comments from a Chinese vice premier that China supports
efforts by the EU to calm global markets in the wake of Europe's
debt crisis lent further support, bolstering the euro-sensitive
precision machinery sector. Canon Inc 7751.T rose 1.6 percent.
 "Investors are buying on dips, pushing the Nikkei higher
after yesterday's losses," said Takashi Ohba, a senior strategist
at Okasan Securities.
 Major electronics maker Sony Corp 6758.T gained 2.7
percent, camera maker Nikon Corp 7731.T climbed 2.8 percent and
Mitsubishi Motors Corp 7211.T added 2.5 percent.
 "The Nikkei was flat last week and traders waited for any
positive factors to trade on -- they got a good opportunity today
so the market is posting solid gains," said Ohba.
 Tuesday's jump was the biggest daily gain by the Nikkei in
almost three weeks.
 He said traders' next target looms around 10,420.74, where
futures and options contracts expiring in December settled
earlier this month.
 The benchmark Nikkei .N225 gained 1.5 percent or 154.12
points to 10,370.53, while the broader Topix .TOPX rose 0.9
percent to 906.21.
 Adding to positive sentiment was a calming of the situation
on the Korean peninsula, where North Korea stepped back from
confrontation over military drills by the South on Monday and
reportedly made a new offer on nuclear inspections.
 Lower volume added to market volatility as foreign investors,
who have been net buyers of Japanese equities for the last six
weeks and helped the Nikkei rally some 13 percent since the
beginning of November, were less active due to the approach of
the year-end holidays.
 Only 1.6 billion shares changed hands on the Tokyo Stock
Exchange's first section, well below last week's daily average of
around 2.1 billion shares.
 But analysts said the Nikkei may be re-energised next week
when foreign investors return from holiday.
 "We may see some window-dressing buying at the end of the
month, which is something of a trend every year," said Fujio
Ando, senior managing director at Chibagin Asset Management,
adding that investors may target large cyclical stocks.
 Tokyo shares are still down around 1.7 percent for the year
to date, while the MSCI index for Asian stocks excluding Japan
.MIAPJ0000PUS shows a 12.6 percent jump and Wall Street's
Standard & Poor's 500 Index .SPX has added 11.8 percent.
 "Japan is still lagging behind recoveries in other markets. I
wouldn't be surprised if the index rises further by the end of
the year," said Tsuyoshi Segawa, equity strategist at Mizuho
 Bank of Japan kept monetary policy on hold on Tuesday and
said it would steadily purchase various assets and provide
longer-term funds through its 35 trillion yen ($417.8 billion)
asset buying and market operation fund, to ensure that the
effects of its monetary easing steps spread across the economy.
 Shares of Shinsei Bank 8303.T surged 8.9 percent in heavy
trade after the bank said it would offload its stake in
struggling consumer lender Aplus Financial 8589.OS to a
subsidiary, in a move expected to lower the risk of the mid-size
Japanese bank raising capital. [ID:nTOE6BK04B]
 Skymark Airlines 9204.T jumped 5.8 percent after its CEO
said it would almost triple its fleet to as many as 50 aircraft
over the next four years. [ID:nTOE6BK046]
 ($1=83.77 Yen)
 (Editing by Edmund Klamann)