Japan's Nikkei share average climbed above 9,800 on Wednesday for the first time since last August on the back of Wall Street gains, extending a rally of more than 10 percent this month and heading for its best February performance in two decades.

The Nikkei .N225 advanced 1.3 percent to 9,846.46 by the midday break, a level not seen since early August and pushing closer to the key 10,000-mark.

"With the market behaving at the moment, we are still seeing gaijin (foreign investor) flows coming into Japan," a trader at a foreign brokerage said. "That has been ongoing for the last four weeks. We think it will continue because people underweigh Japan. We have a lot of Asian-based clients talking about buying Japan. We must be close to hitting the top."

The benchmark is up nearly 12 percent this month, on track for its best February performance since 1991, shrugging off negative news from Elpida Memory Inc's (6665.T) bankruptcy filing this week.

Shares of Elpida, Japan's last remaining PC memory chipmaker, slumped 97.6 percent to 6 yen, however .

Chip-related shares jumped after Daiwa Securities Capital Markets upgraded the sector to "positive" from "neutral," helping them easily recover ground after the sector fell a day earlier on the back of Elpida.

Advantest Corp (6857.T) surged 5.1 percent, while Sumco Corp (3436.T), the world's No.2 maker of wafers used to make semiconductors, jumped 5.7 percent and Tokyo Electron Ltd (8035.T) added 1.6 percent.

Other major movers included Panasonic Corp (6752.T), up 3.5 percent after the electronics company named the head of its loss-making TV business as its new president and pledged to get its TV division back on track within two years.

Toshiba Corp (6502.T) advanced 3.1 percent after it agreed to buy some production equipment from hard-drive manufacturer Western Digital Corp (WDC.N) in March.

The broader Topix .TOPX added 1 percent to 846.63. Trading volume on the main board after the morning session was 80.7 percent of its full daily average for the past 90 days.

'OVER-BOUGHT' TERRITORY

Technical indicators showed the Nikkei was ripe for a pullback. The index was deep in "over-bought" territory, with the 14-day relative strength index at 84.5, while the slow stochastic, a short-term momentum indicator, also pointed to a retreat.

"From a technical view point, the market is overheated. We may see a correction in the very short term," said Hisao Matsuura, equity strategist at Nomura.

"Fundamentally, Japan is improving and investors will buy Japanese equities...which will push the market higher," he said, adding that a weaker yen would also help.

Nomura has a Nikkei target of 10,250 for 2012, or an upside of 4.1 percent from the current level.

Overnight, the Dow Jones industrial average .DJI closed above 13,000 for the first time since May 2008 and the S&P 500 .SPX also hit a milestone, as buoyant U.S. consumer confidence data and a sharp drop in oil prices nudged the nearly five-month rally forward.

Global equities have been buoyed by a run of strong U.S. economic data, the European Central Bank's nearly half a trillion euro liquidity injection late last year and further easing steps by the Bank of Japan and the Bank of England.According to Thomson Reuters Datastream, the Topix carries a 12-month forward price-to-book ratio of 0.91, much cheaper than S&P 500's 1.94 and the STOXX Europe 600's .STOXX 1.35.

Investors will focus on Wednesday on the size of the ECB's longer-term refinancing operation gross allotment, as well as net new liquidity. A Reuters poll showed 30 euro money market traders expected the ECB to allot 500 billion euros.

Source :in.reuters.com