* Construction stocks outperform on Deutsche upgrade
* Retailers' forecasts help Nikkei before earnings season
* Resistance seen at Nikkei's March 11 close of 10,254.43
* Weaker yen boosting automakers, other exporters
By Ayai Tomisawa and Antoni Slodkowski
TOKYO, July 8 (Reuters) - The Nikkei average hit a four-month peak on Friday, led by gains in construction stocks after a brokerage upgrade, while investors see the market recovering to pre-quake levels next week if U.S. job figures improve in line with other data.
Construction stocks climbed after Deutsche Securities raised the sector's rating to "overweight" from "market-weight".
It cited rising demand for reconstruction after the March 11 earthquake and a climb in corporate spending since the Lehman failure in 2008.
Strong U.S. private employment and retail data pushed the dollar higher against the yen and lifted exporters, with the world's largest carmaker Toyota Motor seeing active trade. Toyota's shares climbed 1.9 percent to 3,465 yen.
Retailers climbed after Japan's two biggest retail firms posted bullish outlooks for the financial year and as the sector led gains on Wall Street with top companies reporting better-than-expected sales for June.
"The Nikkei's comeback is quite remarkable and faster than I had expected. Macroeconomic data from the U.S., which was really poor in mid- and late June, has recovered quickly and that's helping the Nikkei," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management in Tokyo.
"If U.S. non-farm payrolls on Friday don't disappoint we may see the market next week regaining all the ground it had lost since the quake," he said.
In afternoon trade the Nikkei was up 0.6 percent at 10,136.03 while the broader Topix gained 0.8 percent to 877.48.
At one point the benchmark Nikkei rose as high as 10,207.91, not far from 10,254.43, a level last seen on March 11 when a massive earthquake and tsunami triggered a nuclear crisis and tipped the Tokyo stock market into its second-biggest two-day rout on record.
"The Nikkei's rebound is based on improving fundamentals -- worries over the U.S. soft patch and euro-zone debt are receding while Japanese firms are recovering from the quake faster than anyone had expected," said Takashi Hiroki, chief strategist at Monex Securities.
He said a return of foreign investors to the market is also likely to boost sentiment. Foreigners bought a net 186.4 billion yen ($2.3 billion) of Tokyo stocks last week, the biggest amount since the first week of April.
Construction company Kajima Corp was up 2.5 percent at 244 yen, Obayashi Corp added 1.1 percent to 360 yen and Shimizu Corp gained 2.4 percent to 345 yen. Kajima's rating was raised to "buy" from "hold" by Deutsche.
Utilities recouped a bit of ground after big losses sustained the previous day on a government plan for stress tests on nuclear reactors.
Kyushu Electric rose 1.8 percent to 1,373 yen while Kansai Electric Power gained 1.9 percent to 1,480 yen.
But investors said trading volumes were moderate amid uncertainty over the restart of reactors in the face of opposition by local governments, and utilities could be saddled with extra fuel costs that would be hard to pass on to customers.
SEVEN & I CLIMBS
Japan's largest retailer, Seven & I Holdings , has now recovered all of its post-quake losses. It added 1.3 percent to 2,246 yen after it hiked its full-year earnings outlook above market expectations. Consumers flocked to its convenience stores to stock up on essentials after the March disaster.
Nomura Securities raised its target price for Seven & I to 2,650 yen from 2,600 yen and Goldman Sachs raised it to 2,200 yen from 2,100 yen.
Mitsubishi Estate jumped 2.4 percent to 1,495 yen after the Nikkei newspaper said it will spend 150-200 billion yen ($1.9-2.5 billion) to redevelop an area in Tokyo's Otemachi business district.
The stock is trading at a 67 percent premium to its peers, with its price-to-book ratio standing at 1.6, while the average PBR for the peers is 0.9, according to Thomson Reuters Starmine.
Data from payrolls processor ADP showed U.S. private-sector employers added 157,000 jobs last month, more than double what was expected. A separate report showed a fall in new claims for jobless benefits last week.
The dollar rose 0.4 percent to 81.20 yen . (Editing by Michael Watson)