* Carmakers rise on bargain-hunting, U.S. rebate bill hopes
* Commodity-linked shares climb on higher metal prices
* Nikon sinks on big loss forecast, brokerage downgrade
* Eyes on Friday's U.S. jobs data
By Aiko Hayashi
TOKYO, Aug 6 (Reuters) - Japan's Nikkei average hit its highest close in 10 months on Thursday as Honda Motor Co and other carmakers gained ground after a pull-back, helped by hopes for an extension of the U.S. auto sales rebate programme.
Commodity-linked companies rose after copper prices hit 10-month highs on Wednesday and other base metals climbed, while Pacific Metals jumped over 6 percent after it raised its forecast for the financial year ending in March.
But Nikon Corp tumbled 10 percent after the precision equipment and camera maker warned its operating loss would be more than double its initial estimate this year. JPMorgan Securities lowered its rating and cut its price target.
"Auto shares gained as investors were encouraged by news that the United States would vote on the auto sales incentive bill tonight," said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC.
Senate Majority Leader Harry Reid said the U.S. Senate would vote on Thursday on extending the popular "cash for clunkers" auto sales incentive bill after an agreement with Republicans.
Federally backed rebates of up to $4,500 to consumers who trade in old, gas-guzzling vehicles and buy new, fuel-efficient ones helped boost industry sales in July to a 2009 high.
"Risk-taking hasn't weakened, either, because serious worries about Friday's U.S. jobs data didn't really emerge after the ISM and ADP data. They came out weaker than expected but not by very much," Takahashi said.
In moderate trade, the Nikkei added 1.3 percent or 135.56 points to 10,388.09, its highest finish since Oct. 6.
The broader Topix rose 0.8 percent to 957.51.
Analysts said the Nikkei's next targets are the psychologically important 10,500 level, followed by 10,800 and then 12,000 -- roughly where it was when U.S. investment bank Lehman Brothers collapsed last year.
U.S. shares lost ground on Wednesday after the ADP private-sector jobs report showed private employers cut 371,000 jobs last month.
The U.S. Labor Department's non-farm payrolls report on Friday is expected to show 320,000 jobs were lost in July, according to economists polled by Reuters.
Other data showed the U.S. service sector contracted in July at a faster pace than in June, with the Institute for Supply Management's services index falling to 46.4 last month from 47.0 in June -- below a median forecast for a rise to 48.
Takashi Kamiya, chief economist at T&D Asset Management, said that while bullish sentiment in the market kept its momentum, concerns remained.
"One concern is that individual household income is not improving, and that is keeping consumption weak," he said.
AUTOMAKERS STRONG
Carmakers climbed on bargain-hunting after a dip on Wednesday, with Honda climbing 3.7 percent to 3,110 yen and Toyota Motor Co gaining 3.8 percent to 4,130 yen.
Nissan Motor Co advanced 3.1 percent to 702 yen.
Pacific Metals, a manufacturer of ferronickel, shot up 6.4 percent to 821 yen after it raised its forecast for the year to March 2010 to an operating profit of 6.1 billion yen from a profit of 2.5 billion yen.
The company cited strong nickel prices for the second quarter and said it expected them to remain firm.
Aluminium maker Nippon Light Metal surged 7.2 percent to 104 yen.
But Nikon plunged 10 percent to 1,690 yen after the company lowered its forecast for the financial year to March to an operating loss of 30 billion yen, more than double its previous estimate for a loss of 12 billion yen.
JPMorgan Securities downgraded Nikon to "neutral" from "overweight" and cut its price target to 1,700 yen from 2,100.
But glass makers rose after Nikon raised its LCD stepper sales outlook for the year to March. Nippon Electric Glass advanced 2.5 percent to 1,042 yen and Asahi Glass gained 3.6 percent to 797 yen.
Some 2 billion shares changed hands on the Tokyo exchange's first section, almost in line with last week's daily average.
Advancing stocks slightly outnumbered declining ones, 808 to 734. (Editing by Chris Gallagher)