* Nikkei has best day in a month, week's losses erased * Property shares up on expectations of economic recovery
* Aozora Bank and Shinsei Bank climb on merger talks By Elaine Lies
TOKYO, June 25 (Reuters) - Japan's Nikkei stock index climbed 2.2 percent on Thursday for its best day in over a month, as property shares climbed on expectations for an economic recovery and exporters got a boost from a weaker yen.
Aozora Bank and Shinsei Bank soared on news they were in merger talks, while Tokyo Electron and other tech shares rose after their U.S. tech peers drew strength in the wake of stronger-than-expected quarterly results from software maker Oracle Corp.
Market analysts said investors had been cheered by a lack of surprises from the Federal Reserve's policy meeting and were engaged in both bargain-hunting and short-covering.
"Basically, nothing's changed since the Nikkei rose above 10,000 -- the hopes for economic recovery are still there, with people expecting that next week's Bank of Japan tankan and U.S. indicators will reinforce this," said Tsutomu Yamada, an analyst at Kabu.com Securities.
"What we're seeing today is a boost from the weaker yen, gains in Asian shares and buying by foreign investors."
The benchmark Nikkei gained 205.76 points to 9,796.08, completely erasing losses sustained in a 2.8 percent fall earlier this week and marking its best day since May 19 in percentage terms.
The broader Topix gained 1.9 percent to 919.77.
Among notable gainers were property shares such as Mitsubishi Estate, climbing on a combination of a sense that the domestic economy is improving and recent positive brokerage reports on the sector.
"In addition, property shares have always lagged the rest of the market in responding to trends, and this is true now as well," said Hideyuki Ishiguro, a supervisor at the investment advisory department of Okasan Securities.
Mitsubishi Estate rose 5.7 percent to 1,585 yen and Tokyu Land gained 6.4 percent to 434 yen. The real estate sector rose 5.1 percent, becoming the biggest gainer among the subindexes.
The Nikkei's gains put it solidly above its 25-day moving average, a closely watched technical level among Japanese equities traders that now comes in around 9,700.
The 25-day moving average had acted as support for the Nikkei over the course of its three-month rally since March, but became a resistance level after the average fell below it earlier this week.
NO FEARS FROM FED
Relief that there were no surprises from the Federal Reserve policy meeting encouraged investors from the start of trade, with buying picking up momentum as the day went on.
The Federal Reserve kept interest rates at nearly zero as widely expected on Wednesday, and gave no hint on an imminent exit from its bold policy easing.
Investors had been keenly awaiting the Fed's policy statement, nervous it could hint at interest rate hikes.
The yen fell as the market weighed up whether to resume rallies in riskier assets, with the dollar gaining 0.6 percent to 96.25 yen.
Exporters such as Honda Motor Co climbed as a result, with Honda gaining 2.3 percent to 2,625 yen and Toyota Motor Corp up 2.2 percent at 3,700 yen.
Canon Inc and Sony Corp benefited from that as well as from gains among tech shares in the United States, with Canon rising 2.2 percent to 3,270 yen and Sony up 2 percent at 2,515 yen.
Loss-making lenders Aozora Bank and Shinsei Bank confirmed on Thursday they are in talks to merge, a move that would create Japan's sixth-largest bank.
Sources told Reuters in April the two were discussing a merger. Japanese media have since reported that negotiations may have been stalled by disagreements between the banks' major shareholders.
Aozora Bank surged 10.8 percent to 154 yen and Shinsei Bank soared 11 percent to 161 yen.
Mitsubishi Corp and other trading houses gained after prices of metals climbed overnight, with copper rising 3 percent after U.S. durable goods orders for May were better than expected, raising hopes the U.S. economy may be on the mend.
Mitsubishi gained 4.4 percent to 1,817 yen, Mitsui & Co rose 3.7 percent to 1,155 yen and Itochu Corp gained 2.6 percent to 663 yen.
Trade lightened, with 2.2 billion shares changing hands on the Tokyo Exchange's first section compared with last week's daily average of 2.5 billion.
Advancers outnumbered decliners by more than 8 to 1. (Reporting by Elaine Lies; Editing by Chris Gallagher)