* Both Nikkei and Topix hit fresh 2-year highs
* Nikkei eying 21-year high
* Asatsu-DK jumps after Bain say to buy co
By Ayai Tomisawa
TOKYO, Oct 3 (Reuters) - Japanese stocks hit fresh two-year highs on Tuesday morning, tracking a Wall Street rally as data pointed to underlying strength in the U.S. economy, while a weaker yen also helped overall sentiment.
The Nikkei rose 0.9 percent to 20,582.26 in midmorning trade, the highest level since August 2015. If it trades above 20,952.71 hit in June 2015, it will be the highest level since 1996.
The broader Topix gained 0.5 percent to 1,683.84, also the highest since August 2015.
Wall Street stocks rose with all three major indexes hitting record high closes after a measure of U.S. manufacturing activity surged to a near 13-1/2-year high in September.
Market participants said investors turned to positive factors in the market such as strength in the U.S. economy, while geopolitical tensions between the U.S. and North Korea, which roiled the market last month, have receded for now.
“Since there are no serious moves (from both sides) now, major concerns that worried the market recently have been fading for now,” said Hikaru Sato, a senior technical analyst at Daiwa Securities. “The market takes heart from a weakening yen, while they are focused on more developments and headlines related to Japan’s election.”
Japanese Prime Minister Shinzo Abe last week dissolved the parliament’s lower house and called a snap election for Oct. 22.
Abe called the general election hoping to keep his conservative Liberal Democratic Party-led coalition’s majority in the lower house.
However, his bet now looks increasingly shaky, given growing support for a new party formed by the popular governor of Tokyo, which is drawing candidates from other opposition parties.
The dollar rose 0.4 percent to 113.15 yen, underpinning overall sentiment, with 30 of Topix’s 33 subsectors in positive territory.
Both defensive stocks and exporters gained ground, with realtor Mitsui Fudosan Co soaring 2.4 percent, Mitsubishi Estate Co rising 1.4 percent, drugmaker Eisai Co adding 1.9 percent, Honda Motor Co advancing 1.0 percent and Fanuc Ltd surging 1.6 percent.
Meanwhile, Asatsu-DK Inc jumped more than 18 percent after Bain Capital said it plans to buy it for 152 billion yen ($1.35 billion). (Editing by Sam Holmes)