Nikkei gains on hopes for robust US, Japan earnings

* Nikkei up 0.2 pct by midday break

* Retail investors returning to market -fund manager

* They boost midday volume to 1.2 billion shares

* Apple climbs in extended trade, helps sentiment

By Antoni Slodkowski

TOKYO, Jan 19 (Reuters) - The Nikkei stock average rose on Wednesday, inching back towards recent eight-month highs, as a mostly upbeat start to the U.S. earnings season lifted expectations for Japanese firms to show a further recovery in earnings.

Target price hikes for Google <GOOG.O> and earth-moving equipment maker Caterpillar <CAT.N> have bolstered hopes that the world's No.1 economy is on a sustainable recovery path and sent U.S. stocks higher, despite weak results from Citigroup <C.N>.

Robust earnings for Apple Inc <AAPL.O> offset concerns about Chief Executive Steve Jobs medical leave and the stock rose in extended trade.

The Nikkei has climbed 3 percent this year and is up 15 percent since the start of November after many foreign investors changed their stance on laggard Japanese stocks to neutral from underweight.

"Retail investors are joining foreigners, but they are mostly buying small- and mid-size cap shares, concentrating on news for particular sectors or individual companies," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

"After Google reports tomorrow investors will shift their focus back to Tokyo companies. As most of them are expected to post strong earnings, the market will look for news about how they're going to sustain that performance in the long run."

Osakabe mentioned cost control, structural changes, exposure to growing Asian markets and foreign currency hedging as key focus points for the market.

By the midday break the benchmark Nikkei <.N225> was up 0.2 percent, or 19.95 points, at 10,538.93.

Resistance now looms at 10,620.57, an eight-month peak marked last week, market players said. If that level is breached, the next target investors are eyeing is 10,638.23, a high hit in May last year.

The broader Topix index <.TOPX> added 0.2 percent to 933.44.

With individual investors actively buying, trading volume picked up and 1.2 billion shares changed hands on the Tokyo Stock Exchange's first section by midday. The day's volume was set to come in around last week's closing average of 2.3 billion.

Non-ferrous metals smelters <.INFRO.T> led the Nikkei's advance, gaining 1.5 percent as copper rose close to record highs on Tuesday.

Sumitomo Metal Mining <5713.T> gained 3.4 percent to 1,435 yen and Dowa Holdings <5714.T> climbed 2.7 percent to 578 yen.

Market participants said that foreign buying is set to continue on expectations Japanese companies will post further improvements in their October-December earnings, but also stressed that earnings are still well below pre-financial crisis levels.

"The 300 companies that best represent the Japanese economy would have to post year-on-year increases of up to 14-15 percent to seriously beat market expectations," said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets.

"But, the market hasn't recovered that much yet and it's still going to take a long time for the Topix to reach its 2007 levels when at one point it hit 1,800."

Most analysts now predict that if the dollar/yen rate stays stable, Tokyo shares may climb around 20 percent in 2011. Such an increase would push the broader Topix to a around 1,100.

Social network and gaming company Gree <3632.T> was up 1.7 percent at 1,154 yen after announcing on Tuesday it would go into the smartphone ad network business, connecting advertisers with websites that want to run advertisements. (Editing by Edwina Gibbs and Joseph Radford)