Japan's Nikkei settles at 5-month closing high on optimism for corporate growth

Updates with closing prices

TOKYO, Dec 27 (Reuters) - Japan's Nikkei share average ended at a five-month closing high on Friday, as investors bet on corporate growth in the coming year, with recent automakers' news lifting sentiment.

The Nikkei .N225 jumped 1.8% to 40,821.16, its highest close since July 17. The index gained for a third session and rose 4% this week, the strongest weekly performance since September.

The broader Topix .TOPX rose 1.26% to 2,801.68.

"The market cheered recent news of domestic firms, such as merger talks between Honda and Nissan. That drove expectations that Japanese firms will continue to improve investor returns," said Kentaro Hayashi, senior strategist at Daiwa Securities.

Honda Motor 7267.T and Nissan Motor 7201.T said this week they are in talks to merge by 2026, a historic pivot for Japan's auto industry that underlines the threat Chinese EV makers now pose to the world's long-dominant legacy car makers.

Honda rose 2.07%, while Nissan, which has risen 42% so far this month, slipped 7.82%.

Toyota Motor 7203.T advanced 1.4%, becoming the biggest source for the Topix's gain. The shares rose for a third session after local media reported this week the automaker would double its return on equity target to 20% by around 2030.

A surprise unsolicited takeover bid by Japanese manufacturing giant Nidec 6594.T for Makino Milling Machine 6135.T also drove expectations for better returns, said Hayashi.

Shares of Makino surged 19.35% to close at a daily limit of 9,250 yen, which is lower than Nidec's offer price of 11,000 yen. Nidec jumped 4.14%.

Uniqlo-brand owner Fast Retailing 9983.T rose 2.7%, giving the biggest boost to the Nikkei. Chip-testing equipment maker Advantest 6857.T rose 3.87%.

Seiichi Suzuki, chief equity market analyst at Tokai Tokyo Intelligence Laboratory, said the momentum was strong as retail investors' sales were done by Thursday, the last day for the delivery of stocks for 2024.

Of the more than 1,600 stocks trading on the Tokyo Stock Exchange's prime market, 82% rose and 15% fell, with 1% flat.

(Reporting by Junko Fujita; Editing by Savio D'Souza)

((junko.fujita@thomsonreuters.com;))