* Shionogi jumps on report of new flu drug
* Defensive shares support as optimism on economy wanes
TOKYO, May 25 (Reuters) - Japan's Nikkei share average rose 1.6 percent on Monday as drugmaker Shionogi jumped after a report that it has developed a new flu drug, while retailers and other defensive shares rose on waning optimism about the economy.
Daiichi Sankyo advanced 3.5 percent to 1,736 yen after the drugmaker said on Sunday that Malvinder Singh, chairman and chief executive of its Indian unit Ranbaxy Laboratories had resigned.
"With the New York markets closed today, investors lack trading news during Tokyo hours. If anything, the market appears to be solid on index-related buying by newly set up funds," said Takahiko Murai, general manager at Nozomi Securities.
"Defensive stocks are gaining attention as optimism about the economy has been receding. U.S. housing data is a focus precisely because the data is important in gauging the outlook for the economy. If it turns out to be poor, the market will likely react negatively."
The U.S. housing market, which has been at the centre of the economic downturn, will get more scrutiny when existing home sales are released on Wednesday and new home sales are released on Thursday. Both reports will cover April data.
The benchmark Nikkei added 145.48 points to 9,371.29, after falling 0.4 percent on Friday, matching its 0.4 percent fall for the week.
The broader Topix climbed 1.1 percent to 885.76.
The Dow Jones industrial average dipped 0.2 percent on Friday. U.S. markets will be closed on Monday for the Memorial Day holiday, and British markets will be closed for a bank holiday.
Ratings agency Standard & Poor's rattled markets on Thursday when it said it might cut Britain's AAA credit rating because of the danger of soaring public debt, sparking fears of similar action against the United States.
Analysts also said investors were watching out for news on the fate of General Motors.
GM faces a June 1 deadline to work out issues with creditors if it wants to avoid a bankruptcy filing. On Friday, a spokesman for some GM creditors said the biggest bondholders of roughly $27 billion in debt plan to reject GM's current offer for a 10 percent equity stake.
In Tokyo, shares of Shionogi surged 6.2 percent to 1,961 yen after Kyodo news cited industry sources as saying the drugmaker is expected to market a new influenza drug possibly from next year in Japan, giving more options for flu treatment.
The number of cases of H1N1 flu in Japan has topped 300.
Other drugmakers also gained, with Eisai Co climbing 2.6 percent to 3,130 yen.
Renown Inc gained 4.4 percent to 142 yen after the Sunday Times reported it is in talks to sell its upmarket British fashion brand Aquascutum to China's YGM Trading
Retailer stocks gained, with Fast Retailing rising 2 percent to 10,720 yen, the top positive contributor to the Nikkei 225.
Exporter shares were mixed. Canon Inc rose 1.3 percent to 3,210 yen, while TDK Corp fell 0.7 percent to 4,270 yen. (Reporting by Aiko Hayashi)