* BOJ ETF purchases lending support to market -analyst
* Foreign buying weaker as nuclear outcome, fundamentals unclear-analyst
* Hitachi surges on plant restart report
* Electric and gas, banking shares down on nuclear woes
By Antoni Slodkowski
TOKYO, March 30 (Reuters) - Japan's Nikkei stock average climbed 2 percent, hitting its highest level since a post-quake panic sell-off as the yen softened against the dollar, but investors said the gains may be short-lived as bargain-hunting by foreigners peters out.
Market players said the Bank of Japan's purchases of exchange-traded funds under an asset purchase programme adopted to bolster the economy was also lending some support to the market.
Inflows from passive funds and year-end window dressing by institutional investors were also cited as reasons that pushed the Nikkei considerably higher in afternoon trade.
But now that the benchmark has regained more than half of the ground it lost in the post-quake rout, foreign funds are buying less aggressively.
"Foreigners have stopped piling into shares on dips, and are now mostly sidelined, waiting for more information on fundamentals and further developments at the nuclear plant," said Hideyuki Ishiguro, a supervisor at Okasan Securities in Tokyo.
By mid-afternoon the Nikkei gained 2.1 percent, or 196.50 points, to 9,656.79. The broader Topix index advanced 1.3 percent to 860.93.
A stronger dollar lifted machinery stocks, electronics makers and post-quake underperformers like Nissan Motor , which surged 3.6 percent. Nissan has fallen more than 10.6 percent since the earthquake and tsunami hit northeast Japan more than two weeks ago.
Both Nissan and Toyota Motor Corp , which have lost a substantial amount of domestic production due to disruptions in their supply chains, were among the most actively traded shares by turnover on the Tokyo stock exchange's main board.
The worst performing sector was again electric and gas with a 3 percent decline, as Tokyo Electric Power dropped another 17.7 percent, adding to a slide to a 47-year low a day earlier as the government pondered whether to nationalise the operator of a stricken nuclear plant.[ID:nL3E7EU01N]
BANKS LOSE
The banking sector , down 12.6 percent since the quake, was the second weakest performer on Wednesday.
Mizuho Financial Group faces an inspection by financial authorities, pushing it 2.9 percent lower to 136 yen, while other banks fell on worries over loans to Tokyo Electric.
"You have to look at all the banks that are lending to the company. It's obvious that investors are going to look at their situation with a huge dose of scepticism," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
The banking sector was 1.1 percent lower on Wednesday.
Japanese shares have lost about 7.5 percent since the March 11 earthquake and tsunami, and a subsequent nuclear safety crisis, triggered the biggest two-day rout in the market since 1987. In contrast, the MSCI index of Asian shares outside Japan has gained 4.6 percent.
The dollar rose as a steady rise in U.S. yields gained traction this week after several Federal Reserve policymakers said the central bank would have to start tightening monetary policy soon to avoid inflation.
Shares of Hitachi Ltd , one of the most severely hit stocks after the quake, jumped 7.2 percent to 431 yen, helped by a Nikkei newspaper report that the electronics giant had partially resumed operations at its biggest factory complex with output expected to return to pre-disaster levels next month. [ID:nL3E7ET31A] (Additional reporting by Chikafumi Hodo; Editing by Edwina Gibbs and Edmund Klamann) Reuters Terminal users can see other related news and rates by double-clicking on: All Nikkei indices <0#.NIKKEI> All shares listed on The benchmark Nikkei ended the day up 1.1 percent or 101.12 points at 9,536.13, Nikkei-225 <0#.N225> N225 index TOPIX index Nikkei Japan 1000 TOPIX sector data Nikkei 300 index TOPIX futures data <0#JTI:> Osaka N225 data <0#JNI:> Chicago N225 data <0#NK:> Top 30 by volume Top 30 by value Total volume Total value 1st section sector RICs All TSE weighted avg Top 30 gainers by pct Top 30 losers by pct Top 30 net gainers Top 30 net losers
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