Nikkei rises 0.8 pct, econ hopes vie with strong yen

* Nikkei gains 0.8 pct, highest close in more than a week

* Machinery shares up on hopes of business from U.S. stimulus

* Yen's rise against dollar caps gains, profit-taking emerges

* Eyes on fate of Big Three, but slightly more hopeful (Adds stocks, details)

By Elaine Lies

TOKYO, Dec 9 (Reuters) - Japan's Nikkei average rose 0.8 percent on Tuesday, with the yen's advance digging away at gains made by machinery firms such as Komatsu (6301.T: Quote, Profile, Research, Stock Buzz) on hopes U.S. stimulus plans will prevent a recession there from deepening. Some exporters such as Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) managed to cling to gains despite the dollar's falling to the lower 92 yen level, but others edged down, mainly electronics firms like Canon Inc (7751.T: Quote, Profile, Research, Stock Buzz).

Nintendo Co Ltd (7974.OS: Quote, Profile, Research, Stock Buzz) climbed 4.2 percent to 33,700 yen after it said sales of its Wii game console more than doubled during the week of the Thanksgiving holiday in the United States, apparently defying the retail gloom of the global economic crisis. [ID:nT338918]

But market players said wariness remained about how long shares could rise given overall economic conditions.

"Wall Street shares rose on expectations, but things haven't gotten any better. In fact, the indicators are so bad they could hardly be worse," said Yutaka Miura, a senior technical analyst at Shinko Securities.

"Certainly we do have economic policies, but we still don't know exactly what this will result in, and the situation of the U.S. carmakers has yet to be resolved. This uncertainty is hitting the dollar and then stocks." The benchmark Nikkei .N225 gained 66.82 points to 8,395.87 after earlier rising to 8,499.60, its highest level in more than a week. The broader Topix .TOPX rose 0.7 percent to 817.94

"There's reassurance to an extent because of stimulus plans from various nations, including the United States and China, and because it looks as though the Big Three may be safe for now," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"But we need something new to see more gains, something concrete."

U.S. stocks rallied to their highest level in a month on Monday on optimism that President-elect Barack Obama's proposed infrastructure spending could limit the depth of the recession and on hopes for the bailout of automakers GM (GM.N: Quote, Profile, Research, Stock Buzz), Ford (F.N: Quote, Profile, Research, Stock Buzz) and Chrysler CBS.UL. [ID:nN05458678]

Obama has started by asking his economic team to come up with a plan to create at least 2.5 million new jobs by 2011. Congress is also expected to pass a hefty new economic stimulus bill in January that could be ready for Obama's signature immediately after he is sworn in.

Meanwhile, the White House reviewed a Democratic plan on Monday to bail out stricken automakers with up to $15 billion in loans, a move that would also clear the way for longer-term help if industry meets certain conditions. [ID:nN07466561]

MACHINERY MOVES But in one indication of how tough the situation still remains, Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz) announced after the close a swathe of restructuring steps including cutting production facilities by about 10 percent from the current 57 sites and eliminating some 8,000 workers in its electronics division.

The U.S. rally was powered by construction machinery companies, with Caterpillar (CAT.N: Quote, Profile, Research, Stock Buzz) surging almost 11 percent on expectations of the infrastructure spending.

Japanese machinery shares, strong on Monday, extended their rise for the same reason, although most had pared gains by the close.

Komatsu climbed 2.9 percent to 1,036 yen and Kubota (6326.T: Quote, Profile, Research, Stock Buzz) rose 6.5 percent to 555 yen. Hitachi Construction (6305.T: Quote, Profile, Research, Stock Buzz) climbed 3.3 percent to 995 yen.

Shipping firms also climbed on the same expectations, with the sea transport sub-index gaining 5.7 percent to become the third-strongest of the subindices.

Mitsui O.S.K. Lines (9104.T: Quote, Profile, Research, Stock Buzz) gained 6.2 percent to 498 yen, while Nippon Yusen (9101.T: Quote, Profile, Research, Stock Buzz), Japan's largest shipping firm, rose 6 percent. Kawasaki Kisen (9107.T: Quote, Profile, Research, Stock Buzz) rose 4 percent to 367 yen.

Honda climbed 6.3 percent to 1,845 yen, partly on relief about U.S. automakers. But Toyota Motor Co (7203.T: Quote, Profile, Research, Stock Buzz) edged up just 0.7 percent to 2,750 yen.

Canon shed 0.4 percent and Hitachi Ltd (6501.T: Quote, Profile, Research, Stock Buzz) lost 1.2 percent to 424 yen, while Panasonic Corp (6752.T: Quote, Profile, Research, Stock Buzz) lost 1.2 percent to 1,070 yen.

Sony, though, rose 3.9 percent to 1,896 yen.

Trade was active on the Tokyo exchange's first section, with some 2 billion shares changing hands, compared with last week's daily average of 1.8 billion.

Advancing stocks outnumbered declining ones 823 to 763. (Reporting by Elaine Lies; Editing by Michael Watson)