TOKYO, Jan 4 (Reuters) - Japan's Nikkei average is expected to gain in its first trading session of 2011, after global shares resumed their rally on stronger manufacturing data the day before, while oil rose as the outlook for growth increased optimism about demand.
The Institute for Supply Management said U.S. manufacturing grew for a 17th straight month following news of faster growth in European manufacturing as well.
The dollar clawed back above its year-end levels against the yen to around 81.75 yen. The stronger yen against the greenback is likely to weigh on exporters' shares, but a bounce back from the recent 80-yen levels will lend support, traders said.
"The Nikkei will likely gain at the start and then move in a tight range for the rest of the day as the rally in global shares and expectations for recovery in the U.S. economy will provide support," said Hiroichi Nishi, general manager at Nikko Cordial Securities.
Nikkei futures traded in Chicago closed at 10,365, up 1.5 percent from the Osaka close of 10,210.
Analysts said the Nikkei on Tuesday is expected to move in a range of 10,200 to 10,350. On Thursday, the final trading day of 2010, the index lost 1.1 percent to 10,228.92, pressured by profit-taking as the yen advanced against the dollar.
Stocks are also likely to get a boost from the "January effect" when fund managers are no longer engaged in year-end window dressing and instead focus on stocks they find attractive.
Shares in resource-related companies will likely be supported as oil extended its rally to a 27-month peak after upbeat European and U.S. manufacturing data and forecasts for cold weather reinforced optimism about economic and energy demand growth.
Investors said that while the manufacturing data was positive and indicative of a growing economy, market players are now focusing on the U.S. payrolls data due on Friday.
On charts, the Nikkei is expected to find support at its 25-day moving average, currently around 10,221.
STOCKS TO WATCH:
-- Honda Motor Co.
Honda plans to ramp up motorcycle production and triple sales in India to 5 million units annually in five years as its partnership with the Hero Group nears end, the Nikkei business daily reported on Monday.
--NTT DoCoMo
Japan's top mobile operator, NTT DoCoMo, is looking to launch a tablet computer that will be produced by LG Electronics and run on software developed by Google, the Nikkei business daily reported on Saturday.
--Toshiba Corp
Toshiba is making its foray into the tablet war, offering a 10-inch device it says will be comparable in price to Apple's iPad. (Reporting by Antoni Slodkowski; Editing by Chris Gallagher)