* Nikkei touches 1-1/2 week low before erasing losses * Weaker-than-expected Q4 GDP reading weighs on market * Rakuten dives after acquisition announcement By Tomo Uetake TOKYO, Feb 17 (Reuters) - The Nikkei stock average edged up on Monday, taking heart from gains on Wall Street, although trade was choppy after weaker-than-expected Japanese economic growth data soured investor sentiment.
The benchmark Nikkei fell as much as 0.7 percent to 14,214.60, its lowest since Feb. 6, following the GDP data, before short-covering helped it erase losses to last trade up 0.3 percent at 14,349.32.
Many market players are likely to have had big short positions already, given the massive short-selling seen in recent sessions. Short-selling accounted for almost 35 percent of the total selling on Friday - an unusually high level.
The market also drew some comfort from data published late on Friday, which showed foreign investors became net buyers of Japanese shares in the first week of February for the first time this year after relentless selling in January.
Foreign investors bought a net 41.2 billion yen ($404 million) of Japanese stocks in the Feb. 3-7 week after selling a net 1.17 trillion yen worth in January.
Yet traders say the market needs more aggressive buying from foreign investors, who bought 15.1 trillion yen of Japanese shares last year, given that their buying was the driving force behind the Nikkei's 57 percent rally last year.
U.S. stocks edged up on Friday, with major indexes notching a second straight week of gains and the benchmark S&P 500 nearing a record high.
The U.S. benchmark has almost erased its losses since the start of year. By contrast, Japanese shares have underperformed most other markets in 2014, shedding more than 12 percent, and certainly have not been helped by a string of weak economic data.
Japan's gross domestic product rose 0.3 percent in October-December from the previous quarter, well below the median 0.7 percent expansion forecast by economists.
"The biggest factor behind the weaker-than-expected GDP growth is lacklustre external demand. Domestic demand was weak too, which is not an encouraging sign," said Junko Nishioka, chief economist at RBS Securities.
"It is nothing to despair about since economic growth is being maintained, but lacklustre domestic expenditure puts a damper on the impact that recent government economic policies are supposed to have," she said.
The yen strengthened to around 101.40 per dollar, near the 2-1/2-month high around 100.75 hit earlier this month, pressuring shares of exporters.
Mazda Motor Corp, the fourth most-traded stock on the main board on Monday, retreated 0.6 percent and Panasonic Corp lost 0.9 percent.
Rakuten Inc dived as much as 13.2 percent after the e-commerce company said it would buy call and messaging app provider Viber Media Inc for $900 million in a deal that would more than double the number of users in its digital empire.
"The market sees the purchase price as too high," said Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas in Tokyo.
Rakuten was the fifth-most traded stock on the Topix.
The Topix index was up 0.3 percent at 1,187.55 in subdued trade, with volume at 29 percent of the full daily average for the past 90 trading days.
The JPX-Nikkei Index 400, a recently introduced gauge comprising firms with high return on equity and strong corporate governance, was up 0.3 percent.
The Bank of Japan kicks off a two-day policy meeting on Monday. The central bank is widely expected to leave monetary policy unchanged.
- US International News