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Nikkei rebounds after strong BOJ tankan; economic stimulus in focus

* Nikkei rises 1.2 pct, Topix up 0.8 pct

* Japan business mood near 6-year high - BOJ tankan

* US govt on brink of shutdown, congress remains deadlocked

* Heavyweights, automakers in demand

By Tomo Uetake

TOKYO, Oct 1 (Reuters) - Japan's Nikkei average rebounded

more than 1 percent on Tuesday morning after strong corporate

sentiment data reinforced expectations that the prime minister

will go ahead with a fiscal reform plan and offer stimulus to

mitigate the impact on economy.

Sentiment among large Japanese manufacturers improved more

than expected to a nearly six-year high, the Bank of Japan's

quarterly "tankan" survey showed before the market


Prime Minister Shinzo Abe had cited the tankan outcome as

key factor in deciding whether to raise the sales tax in April

to help fix Japan's tattered finances. He is expected to

announce the tax increase later on Tuesday as well as an

economic stimulus package.

"The tankan results, especially the (big manufacturers'

sentiment) index, have boosted the case for Prime Minister Abe

to proceed with a planned sales tax hike next year," said

Masayuki Doshida, a senior market analyst at Rakuten Securities.

"So foreign investors are buying shares without waiting for

the announcement this evening."

The benchmark Nikkei was up 1.2 percent at 14,627.66

at the midday break, after dropping 2.1 percent to 14,455.80 on

Monday. The broader Topix added 0.8 percent to 1,203.26.

The gains came despite global investor worries as the U.S.

government was on the verge of a major shutdown, with Congress

in partisan deadlock over Republican efforts to halt President

Barack Obama's healthcare reforms using a temporary spending

bill. Obama urged Republicans to reach an 11th-hour deal to

avert any economic harm.

Index heavyweights led the gains on the back of foreign

investors' buying of stock-index futures. SoftBank Corp

climbed 3.2 percent to become the most-traded stock by turnover

on the main board, and Fast Retailing Co Ltd advanced 2


Automakers were also in demand as the dollar rose as high as

98.685 yen on trading platform EBS. A weaker yen sharpens

Japanese exporters' competitive edge in global markets and

bolsters their dollar earnings when repatriated.

Fuji Heavy Industries Ltd, which makes Subaru cars,

advanced 2.3 percent and was the ninth-most traded stock by

turnover on the main board. Honda Motor Co Ltd gained

1.7 percent and Nissan Motor Co Ltd added 1.3 percent.

The benchmark Nikkei is up 41 percent this year, but is down

8 percent since its May peak.