* Nikkei hits new 8-mth high on U.S. stocks gain, weak yen
* Banking, property shares higher on foreign buying
* Trading volume highest this year
By Antoni Slodkowski and Ayai Tomisawa
TOKYO, Jan 12 (Reuters) - The Nikkei gained on Wednesday, hitting an eight-month high at one point, as some upbeat U.S. earnings reports and a weaker yen provided momentum for foreign investors to pile into financial and property shares.
Earnings reports from U.S. companies, including homebuilder Lennar and store chain Sears Holdings beat expectations, bolstering hopes that the world's No.1 economy is on a sustainable recovery path.
Although it sharply underperformed other major indices in 2010, the Nikkei has added 15 percent since November, with foreign investors net buyers of Tokyo stocks in the week to Jan. 1 for a ninth straight week.
"Foreign investors have been reducing their underweight positions to neutral (on Japanese stocks), and they are gradually becoming overweight on certain sectors," such as automakers and some machinery stocks, said Mattia Ciancaleoni, director of equity sales at Citigroup Global Markets Japan.
In active trade, the benchmark Nikkei was up 0.2 percent or 25.95 points at 10,536.63 by mid-afternoon. Earlier it hit 10,576.51, its highest intraday level since May 13, 2010.
The broader Topix added 0.5 percent to 931.74.
In comparison to the Nikkei's 15 percent gain since November the Dow Jones Industrial Average has added 5 percent and the FTSE has risen 5.6 percent.
Wednesday marked the most active trading day so far this year. Around 1.7 billion shares changed hands on the Tokyo Stock Exchange's first section by midafternoon, with the day's total likely to come in well above last week's average volume of 2.0 billion shares.
"High volume is something to focus on today. It means that long-term foreign investors, such as European pension funds have come back to the market," said Shoji Yoshigoe, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. Ltd.
"If volume keeps around these levels for a little longer, more domestic players, including retail investors, may come back to the market, pushing it even higher."
BANKS LEAD ADVANCE
Banks and property shares led the advance, as foreign funds continued adding underweight financial stocks to their portfolios and property shares were in favour due to the Bank of Japan's asset buying scheme.
Mitsubishi UFJ Financial Group, Japan's biggest bank by assets, gained 3.4 percent to 457 yen, while Sumitomo Mitsui Financial Group added 3 percent to 3,006 yen and Mizuho Financial Group rose 3.7 percent to 169 yen.
"Now that Resona's share issuance is out and the impact has been priced in, investors are buying back heavily shorted banking shares," said a trader who asked not to be quoted by name.
Resona Holdings said on Friday it would go ahead with a share offering to raise about $8 billion, taking advantage of the recently buoyant stock market to make progress on its repayment of government bailout funds.
The top three lenders were the most actively traded equities by turnover on the Tokyo bourse's first section.
The sector, which has gained 23 percent since November, is still considered undervalued as its price-to-book ratio stands at around 0.7, underperforming the average PBR of 1.2 for the Nikkei 225 components. If a PBR is below 1 the shares are seen as undervalued.
"Expectations that futures prices will rise are strong as some foreign securities have built up call options at 11,000," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities, adding that a slightly weaker yen against the euro is also calming investors.
The weaker yen against both the dollar and the euro helped exporters outperform, with Toyota Motor Corp gaining 1.2 percent to 3,495 yen and Honda Motor Corp rising 1.4 percent to 3,310 yen. (Editing by Edwina Gibbs)