* Nikkei extends gains, up 0.1 pct
* Nikkei hits six-month high at one point
* But sentiment strong amid signs of recovery in US economy
By Antoni Slodkowski
TOKYO, Dec 3 (Reuters) - Japan's Nikkei share average hit a six-month high on Friday after U.S. retail and housing data raised hopes for a swifter recovery in the world's biggest economy and as concerns about Europe's debt crisis eased.
Stronger-than-expected November same-store sales from U.S. retailers, a sharp jump in pending home sales, and a better labour market became the latest signs that the U.S. economic recovery is on track and a double-dip recession less likely.
Traders also said the European Central Bank was buying Portuguese and Irish debt, calming investor panic over euro zone debt for now and offsetting initial disappointment after ECB President Jean-Claude Trichet did not announce a more aggressive policy response.
"As Wall Street posted big gains recently, investors' expectations that the U.S. economy will pick up steam are rising and that's why the market tested the six-month high today," said Kazuhiro Takahashi, general manager at Daiwa Capital Markets
The Nikkei extended Thursday's gains of almost 2 percent, adding 0.1 percent or 13.73 points to 10,182.25 in light trade. At one stage it hit a six-month intraday high of 10,254.00 but gave up earlier gains on profit-taking, market players said.
The broader Topix index was 0.2 percent higher at 878.75.
But popular stock Fast Retailing lost around 3 percent after it said sales at the Japan outlets of its Uniqlo casual-clothing chain tumbled 14.5 percent year-on-year in November.
It was one of the most actively traded stocks by turnover and the worst performing Nikkei component in percentage terms.
FOREIGN FUNDS
Market players said foreign funds, the driving force behind the Nikkei's 8 percent rally in November, are continuing to purchase Japanese equities.
"Momentum players are increasing their holdings in Japanese stocks, especially global cyclical shares like major exporters thanks to the weaker yen," said Mitsushige Akino, general manager at Ichiyoshi Investment Management.
"Buying in November was mostly due to short-covering, but new buying is being seen this month," said Akino adding that funds may look beyond exporters and may start aggressively adding financial stocks if the Nikkei rises to near 11,000.
Market players await U.S. employment figures due at 1330 GMT.
The U.S. government's monthly employment report on Friday is forecast to show another month of job gains in both the private and public sectors. In a Reuters poll, nonfarm payrolls are seen up 140,000 in November, while private payrolls are seen up 153,000..
Even with improving labour market conditions, however, the unemployment rate was expected to remain at a lofty 9.6 percent for a fourth straight month.
Shares of Yahoo Japan rose 1.1 percent after Japan's anti-monopoly watchdog gave the official go-ahead to a search-engine alliance between Yahoo Japan and Google Inc that had been questioned by competitors.
ABC Mart fell 1.6 percent after the discount shoes retailer reported same-store sales in November declined 6.1 percent.
Trade was thinner with less than 0.8 billion shares changing hands on the Tokyo exchange's first section by the midday break, on track to come in below its last week's closing average of 1.9 billion shares. (Additional reporting by Aiko Hayashi and Ayai Tomisawa; Editing by Edwina Gibbs)