* Nikkei jumps to highest since Oct 6, breaks 10,500
* Buoyed by better than expected U.S. and Japanese data
* M'bishi Chemical jumps on report it to buy M'bishi Rayon
TOKYO, Aug 10 (Reuters) - Japan's Nikkei stock average climbed 1.5 percent to a 10-month high on Monday after better-than-expected Japanese and U.S. data underpinned hopes that both economies are on the mend, with exporters also gaining on a weaker yen. Shares of Mitsubishi Chemical Holdings, Japan's largest chemical firm, surged nearly 6 percent after the Nikkei business daily said it is in talks to acquire resin maker Mitsubishi Rayon in a deal worth up to 200 billion yen ($2.1 billion).
The U.S. unemployment rate fell in July for the first time in 15 months as employers cut fewer-than-expected jobs, while Japanese machinery orders, a leading indicator of capital spending, rose in June for the first time in four months.
"Machinery orders were quite a lot better than expected and if you put this together with the U.S. jobs data, this will really give the market a boost," said Noritsugu Hirakawa, a strategist at Okasan Securities.
"The market was cheered by a solid series of earnings, but we needed proof of macroeconomic recovery to really push higher, and now we're getting that."
The benchmark Nikkei rose 1.5 percent or 156.92 points to 10,569.01, its highest since Oct. 6. The broader Topix gained 1.7 percent to 973.38.
With the Nikkei now having broken 10,500, its next target is likely to be 10,800 -- a level it last saw in October and a 50 percent Fibonacci retracement from its June 2008 high and last October's 26-year low just under 7,000.
"We may see some profit-taking at the highs, and there is a bit of concern that the market may be over-valued, but there aren't really any other reasons to sell right now," added Okasan's Hirakawa.
Mitsubishi Chemicals rose 5.9 percent to 448 yen after the Nikkei report, which also said that the two companies are likely to agree on a deal as early as this autumn and plan to complete the deal in spring next year.
Mitsubishi Rayon was untraded due to a glut of buy orders with the price indicated at 323 yen, up 18 percent from Friday's close. The two companies do not currently have capital ties.
Japan's core machinery orders rose a bigger-than-expected 9.7 percent in June, but it was unclear whether the rise marked a lasting recovery in capital spending.
Still, the rise was enough to boost machinery makers, with Hitachi Construction Machinery Co gaining 2.9 percent to 1,763 yen and Komatsu Ltd, the world's second-largest maker of construction machinery, up 3.3 percent at 1,639 yen.
Exporters gained on a weaker yen, with the U.S. dollar fetching around 97.14 yen -- down 0.4 percent from Friday's New York close but still retaining broad gains.
Honda Motor Corp gained 3.6 percent to 3,210 yen, Canon Inc rose 2.4 percent to 3,490 yen and Sony Corp rose 2.4 percent to 2,760 yen. (Reporting by Elaine Lies; Editing by Edwina Gibbs)