* Nikkei up 1.8 pct after 6.4 pct fall the previous day
* Domestic demand stocks gain in face of global downturn
* Carmakers drop on plunging U.S. sales, Honda expansion cuts (Adds comment, details)
By Aiko Hayashi
TOKYO, Dec 3 (Reuters) - The Nikkei average rose 1.8 percent on Wednesday, buoyed by a jump in retailer Seven & I Holdings after a brokerage upgrade, though automakers weighed on the market in the face of a sharp drop in U.S. car sales.
Fast Retailing surged on robust November same-store sales at its domestic Uniqlo casual clothing chain, while NTT Data, Japan's largest domestic system integrator, also advanced after a brokerage upgrade.
Among automakers, Honda Motor Co dropped to become the top drag on the Nikkei 225 after a report by the Nikkei business daily that it is scaling back its overseas expansion plans.
"Stocks not dependent on spending in the United States and Europe are being picked up as investors screen for companies that will likely book smaller declines in earnings," said Takahiko Murai, general manager of equities at Nozomi Securities.
"Consensus has been built in the market that the U.S. economy won't recover easily -- until late 2009 or early 2010 at the earliest -- despite a raft of measures taken by the government."
The benchmark Nikkei added 140.41 points to finish at 8,004.10, after rising more than 2 percent earlier. It lost 6.4 percent the previous day to book a nearly two-week closing low.
The broader Topix gained 1.5 percent to 799.19.
The dollar was trading around 93.51 yen, compared with a five-week low of 92.63 yen hit on trading platform EBS the previous day. Investors fret over a stronger yen as it curbs exporters' overseas profits when they are repatriated.
Analysts said that investors' focus is now on the fate of U.S. automakers' bailout pleas and that helped cap further gains in the market.
A top lawmaker predicted Washington would approve a bailout for U.S. carmakers after they submitted survival plans, and General Motors Corp and Chrysler LLC said they needed an immediate infusion of cash to avoid failures.
"Money won't really move until we know what will happen to the U.S. automakers," said Naoki Koga, a senior fund manager at Toyota Asset Management.
"Investors are nervous about the outcome (of the bailout requests) as that would affect the U.S. economy, which has a huge impact on Japanese exporters including automakers."
DOMESTIC DEMAND-RELIANT SHARES IN FAVOUR
Shares of Seven & I shot up 12 percent to 2,810 yen after Macquarie Research lifted its rating on the retailer to "outperform" from "neutral", citing strong convenience store sales and solid results at its financial unit.
Fast Retailing jumped 10.2 percent to 10,790 yen after it said November same-store sales at its domestic Uniqlo casual clothing chain jumped 32.2 percent from the same month a year earlier, marking the biggest monthly gain since March 2001.
The stocks were the top two positive contributors to the Nikkei 225.
NTT Data gained 4.9 percent to 344,000 yen after Mizuho Securities upgraded the stock to "2" from "3", citing its stable earnings prospects.
But Honda skidded 4.7 percent to 1,797 yen and Toyota Motor slipped 0.9 percent to 2,800 yen, after U.S. monthly auto sales in November plunged 37 percent to the lowest level since 1982, data showed on Tuesday.
U.S. sales for Toyota dropped 34 percent, Honda fell 32 percent, Ford Motor Co was off 31 percent, Nissan Motor Co tumbled 42.2 percent and Chrysler LLC sales fell 47 percent.
Trade was light on the Tokyo exchange's first section, with 1.72 billion shares changing hands, compared with last week's daily average of 1.84 billion.
Advancing stocks outpaced declining ones by more than 2 to 1. (Reporting by Aiko Hayashi; Editing by Chris Gallagher)