By Aiko Hayashi and Shinichi Saoshiro

TOKYO, Sept 10 (Reuters) - Japan's Nikkei average rose 1.6percent on Friday, helped by what some market players said wasbuying of futures and a slight softening of the yen against thedollar.

Stronger-than-expected U.S. data on jobless benefits andtrade added to investor confidence, market players said, withblue-chip exporters leading the market's advance.

But the benchmark trimmed some gains towards the day's end asChinese shares sagged and caution prevailed ahead of bankingregulation changes to be made over the weekend.

"Upbeat data and the yen lifted stocks early on. But a dip inChina stocks and wariness towards the weekend's events slowed therise in the afternoon ," said Yumi Nishimura, deputy generalmanager at Daiwa Securities Capital Markets.

"There is some caution as China decided to release data overthe weekend instead of next week. Participants also want to seehow the new banking regulations are finalised."

Beijing moved the release of key economic data for August toSaturday from Monday, prompting speculation the numbers couldtrigger a reaction on financial markets.

Central bank and regulatory officials agreed tougher newglobal bank capital rules on Tuesday and have kept investors ontenterhooks until Sunday when their formal endorsement isexpected.

The benchmark Nikkei ended the day 140.78 points higher at9,239.17, pulling away from a 16-month low of 8,796.45 hit onSept. 1. The benchmark gained 1.4 percent on the week.

The broader Topix gained 0.8 percent to 833.72.

Estimates by local brokerages just after the open showedNikkei futures and options contracts expiring in September likelysettled at 9,150.32. The Osaka Securities Exchange laterconfirmed the figure.

"The special quotation every three months is a chance forparticipants to take on fresh positions," said Shoji Yoshigoe, asenior investment strategist at Mitsubishi UFJ Morgan StanleySecurities.

"There appears to be more buyers of futures this time aroundahead of the ruling party vote next week. The buyers seem to bepreparing for a possible Ozawa win. The outcome is very difficultto predict, but it would be too late to start buying futuresafter the vote."

A win by ruling Democratic Party powerbroker Ichiro Ozawa,who is challenging Prime Minister Naoto Kan in a Party leadershipvote on Sept. 14, would likely give a short-term boost to stockswhile weakening Japanese government bonds and the yen, a Reuterspoll showed on Friday.

Analysts say Ozawa appears likely to spend more heavily oneconomic stimulus.

The dollar changed hands at 83.92 yen, compared with the15-year low of 83.34 yen hit this week.

On the charts, the Nikkei faces resistance at 9,410, aroundits 13-week moving average, which has served as solid resistancesince late August. After that, the bottom of the Nikkei'sIchimoku cloud lies around 9,530. Ichimoku charts are popularwith Japanese traders.


Camera maker Canon Inc climbed 5.6 percent to 3,750 yen afterthe company said on Thursday it would spend as much as 50 billionyen ($596.2 million) to buy back up to 1.2 percent of its sharesoutstanding between Sept. 10 and Nov. 12 to improve its capitalefficiency.

Nonferrous smelters gained on the back of the recent surge inprices of nonferrous metals. Copper and zinc for three-monthdelivery on the London Metal Exchange have hit four-months highover the past week on improved global demand prospects.

Sumitomo Metal Mining rose 1.1 percent to 1,207 yen andMitsui Mining and Smelting gained 1.7 percent to 241 yen.

The market took in stride news that the Incubator Bank ofJapan, an unlisted lender specialising in small business loans,was set to file for bankruptcy protection on Friday.

Market players said they saw little impact on the overallmarket, citing the special nature of its business, while the Bankof Japan said it expected no adverse impact on the country'sbanking system from the small lender's failure.

Some 2.19 billion shares changed hands on the Tokyoexchange's first section, its highest volume since late July,boosted by trade related to the settlement of futures andoptions.

Advancing stocks outnumbered declining ones by more than 2 to1. ($1=83.86 Yen) (Editing by Michael Watson)