* European GDP figures further help investor confidence
* Brokerage upgrades dominate market moves in holiday season
* Trend Micro, Hitachi Construction jump on rating upgrades
* Market up-trend continues but profit-taking likely
By Aiko Hayashi
TOKYO, Aug 14 (Reuters) - Japan's Nikkei average hit its highest point in 10 months on Friday, with investor confidence further reinforced after Western Europe's two largest economies reported a surprising return to growth in the second quarter.
Germany and France ended their recessions in April-June, earlier than many policymakers and economists had expected, though U.S. data on retail sales and jobs disappointed.
In a light news week due to the summer holiday season in Tokyo, ratings changes by brokerages dominated moves in the market.
Trend Micro jumped after Nomura Securities hiked its rating on the maker of computer antivirus software to "buy" from "neutral", while Hitachi Construction Machinery surged after Mitsubishi UFJ Securities raised its rating.
"The positive figures out of Germany and France are still a favourable factor for the market, though such prospects had been somewhat priced in during the global market rally over the past month," said Soichiro Monji, chief strategist at Daiwa SB Investments.
"The upward trend continues but the market will likely move in a very narrow range going into next week as it's been overbought in terms of technicals and profit-taking pressure will likely emerge."
In active trade, the benchmark Nikkei rose 1.1 percent or 110.44 points to 10,627.63, after climbing as far as 10,630.38, its highest level since Oct. 6. Volume was boosted mostly by trade related to the settlement of Nikkei options contracts.
The broader Topix added 0.7 percent to 975.43.
The Standard & Poor's 500 Index gained 0.7 percent on Thursday after Wal-Mart posted better-than-expected quarterly earnings as a clampdown on inventory offset falling sales, and it forecast a full-year profit that could beat Wall Street estimates.
The market shrugged off the U.S. Commerce Department report that retail sales fell 0.1 percent in July, defying market expectations of a gain.
Other data showed the number of workers filing initial applications for unemployment benefits rose by 4,000 to a seasonally adjusted 558,000. Economists had anticipated a drop.
"The general trend of economic recovery hasn't changed," said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC.
"The market simply reaffirmed the fact that consumer spending and employment haven't really caught up with the recovery momentum yet."
BROKERAGE UPGRADES HELP BUOY THE MARKET
Hitachi Construction Machinery soared 9.3 percent to 1,947 yen after Mitsubishi UFJ lifted its rating on the construction machinery maker to "2" from "3" and set its target price at 2,000 yen, citing cost cuts as well as recovery in the Chinese and Indonesian markets since June.
Trend Micro gained 3.8 percent to 3,530 yen after Nomura Securities raised its rating and lifted its target price to 4,000 yen from 3,000 yen. It cited new product launches and an early recovery from the recession as companies prioritise security investment.
Trading house Marubeni climbed 4.7 percent to 466 yen after Goldman Sachs upgraded it to "buy" from "neutral", saying it saw the company overshooting guidance for the year to March on stable growth in its food business and its overseas independent power producer business.
Among other notable stocks, Digital Garage Inc rocketed 10.5 percent to 105,500 yen after the Tsutaya movie rental chain operator, Culture Convenience Club Co Ltd, said it plans to buy up to 5 percent of Digital Garage shares by the year-end.
Some 1.1 billion shares changed hands on the Tokyo exchange's first section, above last week's morning average of 962 million.
Advancing stocks outnumbered declining ones, 992 to 509. (Editing by Chris Gallagher)