Japan's Nikkei nudges higher as investors digest election results

TOKYO, July 22 (Reuters) - Japan's Nikkei share average edged higher on Tuesday, as investors returning from an extended holiday weekend reacted positively to the outcome of the upper house election, which aligned with market expectations.

The Nikkei .N225 was up 0.19% at 39,892.81 by the midday break, after rising as much as 1.15% to cross the 40,000 level earlier in the session.

The broader Topix .TOPX rose 0.12% to 2,837.89.

Japan's ruling coalition lost control of the upper house in an election on Sunday, further weakening Prime Minister Shigeru Ishiba's grip on power even as he vowed to remain party leader.

The election was closely monitored as Ishiba's party also lost control of the more powerful lower house in elections last year and his Liberal Democratic Party was facing calls from opposition parties pledging to cut taxes.

"Investors bought stocks as the election outcome was in line with their expectations," said Takamasa Ikeda, senior portfolio manager at GCI Asset Management.

"And they thought the election outcome would not have much impact on Japan's policy framework immediately, as Ishiba said he has no plans to expand his coalition."

SoftBank Group 9984.T rose 2.72%, making it the largest contributor to the Nikkei's gains. Heavyweight chip-testing equipment maker Advantest 6857.T climbed 2.01%.

Another chip-related heavyweight Tokyo Electron 8035.T reversed early gains to inch 0.13% lower.

"The market had not expected the Nikkei to rise that early in the session," said Seiichi Suzuki, chief equity market analyst at Tokai Tokyo Intelligence Laboratory.

"There was no reason for the market to be that bullish about the outlook for the equities as concerns about fiscal health still remain."

Of the more than 1,600 stocks trading on the Tokyo Stock Exchange's prime market, 54% advanced, 40% declined, and 5% traded flat.

Heavy machinery maker Mitsubishi Heavy Industries 7011.T jumped 5.5% to become the top percentage gainer in the Nikkei.

Drugmaker Chugai Pharmaceutical 4519.T fell 1.93%, becoming the biggest drag in the Nikkei.