(Updates to midmorning)
TOKYO, Dec 8 (Reuters) - Japan's Nikkei average rose 1.1 percent on Monday as shares dependent on domestic demand such as drugmakers and household products maker Kao Corp led the way amid the deterioration of the global economy.
Retailer Aeon Co shot up nearly 6 percent after two company sources said on Saturday top trading firm Mitsubishi Corp plans to buy a roughly 5 percent stake in the retailer for more than $324 million, and the two will tie up on overseas procurement amid the economic downturn.
But Toyota Motor Corp slipped after the Nikkan Kogyo newspaper reported on Monday that the automaker is considering cutting capital investment in the business year starting next April 1 by 30-40 percent from the current year in response to a sharp downturn in auto sales.
"Stocks tracked gains on Wall Street, which has grown resilient to bad news including Friday's jobs data on buying on dips and expectations for economic measures by the new president," said Katsuhiko Kodama, a senior strategist at Toyo Securities.
"But people can't keep their eyes off currency moves. I expect the yen will strengthen towards the year-end and the beginning of next year, and that will cap further gains in Japanese stocks."
As of 0054 GMT, the benchmark Nikkei added 87.34 points to 8,004.85. It ended down 0.1 percent on Friday, and fell 7 percent on the week.
The broader Topix gained 0.8 percent to 792.03.
U.S stocks jumped on Friday as investors bet that a steep drop in oil prices will boost consumer spending, lifting retail stocks and offsetting government data showing half a million jobs were lost in November, the weakest performance in 34 years.
Investors also continued to watch the fate of the ailing U.S. auto industry.
Negotiators tried to forge an agreement in principle to provide the "Big Three" American automakers -- GM, Ford and Chrysler -- with at least $15 billion in short-term loans.
The U.S. Senate is due back in session on Monday and negotiators hope to have a package ready that can be quickly approved and sent to President George W. Bush as one of the last measures he signs into law before Democrat Barack Obama succeeds him as president on Jan. 20.
Drugmakers climbed, with Eisai Co jumping 4.8 percent to 3,310 yen, while Kao Corp, Japan's biggest household products maker, added 2.3 percent to 2,865 yen.
Aeon shares jumped 5.7 percent to 875 yen, while Mitsubishi climbed 2.8 percent to 1,035 yen.
Toyota was down 0.9 percent at 2,625 yen. (Reporting by Aiko Hayashi; Editing by Michael Watson)