* Key index rises to minus 10, highest since Oct 2007
* Improved sentiment reflects belief economy has bottomed out
* Investors favour campaign platform of main opposition party
By Nobuhiro Kubo and Mari Terawaki
TOKYO, Aug 21 (Reuters) - Japanese retail investors have become considerably less bearish on domestic stocks with sentiment at its highest in nearly two years, a Reuters poll on Friday showed, reflecting hopes the economy has bottomed out.
The monthly survey also showed a majority of retail investors favour the campaign platform of the main opposition Democratic Party, which has a good chance of ousting the ruling Liberal Democratic Party in an election on Aug. 30.
The poll's investor sentiment index hit minus 10, an improvement of 24 points on July. This marked the first rise in three months and was the highest level since September 2007 when it was at zero.
The index, which is calculated by subtracting the percentage of respondents who say they are bearish from those who are bullish, underscores a growing belief among investors that the economy has bottomed and corporate profits are improving.
"I think the Japanese economy has passed through the worst of the downturn. The business performance of major companies is gradually picking up," said an investor in his 60s.
The survey was conducted between Aug 7 and 13 during which the benchmark Nikkei average hit a 10-month high. A total of 1,027 investors participated in the poll.
Among sectors, sentiment towards high-tech and auto stocks returned to positive territory for the first time in 14 and 20 months respectively.
Last month major car manufactures and electronics makers including Toyota Motor Corp and Panasonic reported better-than-expected April-June results, helped by cost cuts and government measures to kick-start demand.
"Japanese manufactures are going to finish inventory adjustment and increase their production," said an investor in his over 70s.
TEMPORARY BOOST?
Four days after the survey, the government announced that Japan's economy had returned to growth in the second quarter, pulling out of its longest recession since World War 2.
Still, some investors remain pessimistic the recovery is sustainable given it is driven in large part by government spending.
"The economy seems to have inched out of its downturn, but it is thanks to the government's stimulus package. It will take some more time for self-sustained recovery," said an investor in his 40s.
The survey was conducted as Japan prepares for an election for the parliament's lower house on Aug. 30.
Opinion polls have consistently shown the Democrats well ahead, making it likely they will end more than five decades of almost unbroken rule by the conservative LDP.
In the Reuters poll, 59 percent of respondents said they favoured the campaign platform of the Democrats, citing their plans to financially support consumers and for fiscal and pension reforms, while 23.7 percent supported the LDP's policy plans.
The Democrats' platform calls for cutting wasteful expenditure by wresting spending power from bureaucrats, rebuilding faith in the creaking national pension scheme and offering financial support for families with children.
"If uncertainty as to our future lives is removed, we will spend more money now and the economy will go in a better direction," said an investor in his 50s.
The poll, which is conducted anonymously, aims to capture the view of readers of an online magazine aimed at users of the Reuters Japan Web site(http://www.reuters.co.jp) (Editing by Joseph Radford)