* Hopes of progress at euro zone debt meeting
* Benchmark posts weekly gain of 1.4 pct
* Recent resistance levels broken
* Olympus surges, Citi starts coverage with a "buy"
By Lisa Twaronite
TOKYO, Sept 16 (Reuters) - The Nikkei stock average rose more than 2 percent on Friday, posting its biggest daily percentage gain since March, as coordinated action from central banks calmed fears of a European credit freeze and sent financial shares surging.
The benchmark's second day of gains pushed it further away from a 2-1/2 year closing low hit on Wednesday, and gave it a weekly gain of 1.4 percent.
"With today's rise, it is like we are cautiously climbing up a wall but at the same time we're thinking that the wall may collapse if we go up any further," said Kenichi Hirano, a strategist at Tachibana Securities, who added that European debt fears remain.
U.S. Treasury Secretary Timothy Geithner will hold talks with European finance ministers later on Friday and will propose leveraging the euro zone's bailout fund to make it more effective.
"If the meeting does succeed in calming fears of a spreading euro zone crisis and U.S. shares manage to continue gaining, the Nikkei could rise above 9,000 next week," said Mitsushige Akino, chief fund manager Ichiyoshi Investment Management Co.
But he and others cited the relative absence of foreign buyers as one factor limiting the upside potential of Japanese shares.
"We are seeing gains now that foreigners have stopped selling, but in order for gains to continue, we need foreigners to start buying again," said Yutaka Shiraki, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.
The Nikkei climbed 2.3 percent to 8,864.16, breaking above 8,732, the settlement price for September Nikkei futures and options and also above its 25-day moving average of 8,809.
Resistance lies at 8,900, a level above which it hasn't traded since Sept. 2, when it rose to an intraday high of 9,014.27.
The broader Topix index added 2.2 percent to 768.13.
The European Central Bank said on Thursday it was joining with other major central banks in a joint action coordinated with the U.S. Federal Reserve to ease dollar funding for stricken European banks to tackle an emerging credit.
Among financial shares, Nomura Holdings rose 5.5 percent to 308 yen.
Sumitomo Mitsui Financial Group added 4.1 percent to 2,181 yen while Mitsubishi UFJ Financial Group gained 4.6 percent to 345 yen. They were the second- and third-most traded issues by turnover.
Olympus climbed 7.4 percent to 2,225 yen, after Citigroup Global Markets Japan started coverage of the issue with a "buy" rating and a target price of 2,800 yen, citing the midterm potential of the optical equipment maker's endoscope business.
Volume was initially thin ahead of a three-day weekend in Japan, but it picked up late in the session. On the Tokyo Stock Exchange's main board, 1.93 billion shares changed hands, topping last week's average of 1.82 billion shares. Advancers led decliners 1,442 to 152. (Additional reporting by Ayai Tomisawa; Editing by Edwina Gibbs)