* U.S. data, optimism on BOJ encourage investors * Yen/dollar falls to 3-1/2-year low below 95.10 yen * Fast Retailing up 22 percent for the week By Tomo Uetake TOKYO, March 8 (Reuters) - Japan's Nikkei share average stormed to a fresh 53-month high in morning trade on Friday, buoyed by bullish U.S. data, a rule-change for trading and continued optimism there will be aggressive easing from the new Bank of Japan leadership. Market liquidity could be boosted after Japan's Financial Services Agency said on Thursday that it would relax a regulation, called the uptick rule, to allow stock short selling only at a price that is higher than the last trade. "The market welcomes the news on deregulation of short selling because it would reduce volatility," said Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas in Tokyo. "I think that's the biggest factor behind today's strong market sentiment." The Nikkei advanced 2.1 percent to 12,219.11, its highest level since September 2008. It also sailed past the settlement price of a slew of options and futures that expired on Friday morning at 12,072.98, according to market sources. Stocks were also supported by a weaker yen, which hit a 3-1/2-year low of 95.16 to the dollar on Friday after strong Chinese export data boosted risk sentiment. Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities, said he believes a lot of programme buying is taking place. "When the futures go up, that pulls up the whole market," he said. Investors were bullish after the BOJ raised its outlook on Thursday, noting that Japan's economy was "bottoming out" at the last meeting chaired by governor Masaaki Shirakawa before successor Haruhiko Kuroda, who is expected to implement aggressive easing, takes his place. Sekisui House Ltd said it expects operating profit for the year ending January 2014 to jump 28 percent due to increases in rental agreements and new-builds. Its share price shot up 12.2 percent. Analysts say foreign investors continue to pile into large-cap exporters as the yen stays soft, while retail investors are buying smaller domestic-focused companies. FAST RETAILING IS A STAR Index heavyweight and operator of the Uniqlo clothing stores Fast Retailing Co Ltd was the most-traded stock on the main board, contributing 94 positive points to the Nikkei. Shares of Fast Retailing, which on Monday announced strong February sales, were 22 percent up on the week. On Friday morning, Fast Retailing jumped 8.1 percent. The jump stemmed from a combination of algorithm buying and margin trading, a dealer at a Japanese brokerage said. The broader Topix added 1.2 percent to 1,016.72 by the midday break. "I don't get the feeling that the market is overheated at the moment. The Nikkei is only about 5 percent above its 25-day moving average, but it was hovering 9 percent above it in January," Nakanishi of SMBC Friend Securities said. The only losers, Nakanishi added, were likely to be those shares of companies hurt by a soft yen. The weakest sectoral performer on Friday morning was the power utility sector , which dropped 1.1 percent. Convenience store operators also took a hit, with FamilyMart Co Ltd down 1.9 percent after the Nikkei newspaper said its operating profit for the year ended Feb. 28 was likely to come in below its previously projected 45 billion yen, partly due to a drop in cigarette sales. Peer Lawson Inc slipped 0.3 percent.