* Honda rises on hopes closure of plants will cut costs
* Fujitsu falls after incurring personnel costs
By Ayai Tomisawa
TOKYO, Feb 20 (Reuters) - Japan's Nikkei rose to more than two-month highs on Wednesday morning, as progress in U.S.-China trade talks helped lift cyclical stocks such as autos and electronic equipment firms.
The optimism comes despite Japan's exports in January posting their biggest decline in more than two years as China shipments tumbled and orders for its machinery goods fell sharply.
The Nikkei share average rose 0.7 percent to 21,452.25 in midmorning trade after hitting as high as 21,494.85, the highest since Dec. 17.
A new round of talks between the United States and China to resolve their trade war began in Washington on Tuesday, with follow-up sessions at a higher level later in the week.
The market largely shrugged off weak trade data, which showed that Japan's exports fell 8.4 percent in January from a year earlier, focusing instead on stronger prospects of a potential U.S.-China trade deal that could boost equity markets.
"There are concerns about Japan's falling exports, but to investors who haven't caught up with the recent rally in Japanese stocks, there is a risk that they will fall behind the market's further rise if the trade talks go well," said Hiroyuki Ueno, a senior strategist at Sumitomo Mitsui Trust Asset Management.
Automakers gained ground, with Toyota Motor rising 0.9 percent and Mazda Motor adding 1.2 percent.
Electronic equipment firms also attracted buying, with Sony Corp advancing 1.7 percent and Panasonic Corp adding 1 percent.
Honda Motor Co soared 2.4 percent to a two-week high on expectations that the closure of some of its plants would help reduce its fixed costs and production costs. Honda said that it would close its British car plant as well as its plant in Turkey.
The automaker said in October 2017 it would stop making vehicles at its Sayama plant in Japan by 2022 as it grapples with a shrinking domestic market.
Nomura Securities raised its rating to 'buy' from 'neutral and hiked its target price to 3,850 yen from 3,400 yen, saying that the closure of its Sayama plant and two EMEA plants should completely eliminate excess capacity.
"We expect reductions in fixed costs and production costs per vehicle as a result of these plant closures to boost operating profits by 60 billion yen a year from the fiscal year ending March 2022 onwards," analysts wrote in a research report.
Fujitsu Ltd, on the other hand, dropped 3.9 percent after it said it will incur 46.1 billion yen in expense this fiscal year for the programme to redirect employees outside Fujitsu Group.
The broader Topix gained 0.5 percent to 1,613.96. (Editing by Jacqueline Wong)