* Nikkei breaks 10,800 for 1st time since May
* Foreigners buy, while domestic players sell - analyst
* Nikkei could approach 12,000 in next few mths -analyst
By Ayai Tomisawa
TOKYO, Feb 16 (Reuters) - Japan's Nikkei stock average climbed to a nine-month high above 10,800 on Wednesday helped by a softer yen, with the benchmark's strong run encouraging foreign investors to broaden their buying to financial shares.
It was a third straight day of gains for the Nikkei, which has climbed some 17 percent since November when foreigners began snapping up lagging Tokyo stocks, with recent momentum coming from a big shift in market focus to developed economies from emerging ones.
"It's a weaker yen that's lifting sentiment, but foreign investors are also picking up domestic-demand stocks," said Shinichiro Matsushita, a market analyst at Daiwa Securities adding that banking and insurance stocks were in favour.
The dollar climbed against the yen to its highest in eight weeks on Tuesday, boosted by the recent rise in U.S. Treasury yields, with more gains seen likely if bond markets continue to factor in inflation.
The Topix banking index added 1.4 percent, while the index of other financials, which includes consumer lenders, gained 2.5 percent.
But Matsushita said domestic investors, including retail investors, may be taking profits at the recent highs as they tend to buck the trend and gains may be limited.
At the midday break, the Nikkei average was up 0.4 percent, or 41.46 points at 10,788.13, after hitting an intraday high of 10,802.96, its highest level since May 6, 2010.
Analysts said the Nikkei was likely to move between 10,700-10,850 during Wednesday's trade.
The broader Topix rose 0.5 percent to 967.38.
"Recent higher volumes are also helping the mood, so although the Nikkei may move in a narrow range, the market may continue to add gains," said Hiroichi Nishi, general manager at Nikko Cordial Securities.
The Tokyo stock exchange's first section has seen more than 2.0 billion shares change hands for seven consecutive sessions.
Kenichi Hirano, operating officer at Tachibana Securities, said the Nikkei could approach 12,000 over the next few months.
"Despite signs of economic recvery in the U.S., the Federal Reserve is still hamstrung by some market factors in tightening monetary policy, so a very positive situation for stocks with the global economy picking up speed and excess liquidity will probably continue until March or April."
Strong October-December corporate earnings and worries over inflation in emerging markets will continue to support Tokyo stocks, he said.
The dollar climbed to an eight-week high of 83.93 yen on Tuesday and was trading a tad below that on Wednesday.
Exporters rose, with Tokyo Electron rising 1.8 percent to 5,640 yen and Advantest adding 1.7 percent to 1,753 yen.
Daihatsu Motor Co, part of the Toyota Motor Corp group, gained 0.9 percent to 1,314 yen after the Nikkei business daily reported the two carmakers would begin manufacturing a low-priced compact car in Indonesia as early as 2013 for sale there and in neighbouring countries.
Toyota was 0.5 percent higher at 3,930 yen. (Additional reporting by Antoni Slodkowski; Editing by Edwina Gibbs)