* Housing, jobs claim data eases worry about global economy
* Nikkei up 1.4% on week, biggest weekly gain in 2 months
* MACD points up after bullish cross
* Nikkei seen between 8,800 and 9,200-300 next week -analyst
By Aiko Hayashi and Elaine Lies
TOKYO, Sept 3 (Reuters) - Japan's Nikkei average rose 0.6 percent on Friday for a third day of gains as more encouraging data reassured investors about the health of the global economic recovery and sparked short-covering.
But the rise was capped by wariness ahead of closely-watched U.S. August non-farm payrolls data later on Friday, as well as investor concern about whether the recent rush of upbeat indicators signals a true recovery or not.
A Reuters poll this week showed Japanese fund managers raised their weighting for equities to a four-month high in August, but persistent uncertainty over the global economy limited aggressive allocations in stocks and kept the weighting for safe-haven bonds high.
"Sentiment is not exactly bullish, given a still very slow recovery in the United States, but recent figures such as the solid ISM (manufacturing) data seem to indicate that a double-dip recession will likely be avoided," said Junichi Misawa, a senior fund manager at STB Asset Management.
"Stocks and currencies had up until now largely factored in negative scenarios, so further linear slides in stocks are unlikely."
The market took heart from an unexpected rise in pending U.S. home resales in July and a drop in new claims for unemployment insurance for a second straight week.
The figures came on the heels of strong U.S. manufacturing data on Wednesday that, along with good Chinese manufacturing data and stronger-than-expected growth in Australia, have eased, for now, investor fears about the strength of the global economic recovery.
Additional encouragement came after the European Central Bank raised growth forecasts on the back of a strong second quarter.
But the upcoming jobs figures and a three-day weekend in the United States will mean many investors are likely to close out positions, market players said.
August non-farm payrolls are forecast to decline by 100,000. In July, they fell 131,000.
"Should the jobs data prove bad, this could lead to a further strengthening in the yen, which would definitely become a headwind for stocks," said Hiroichi Nishi, general manager of equities at Nikko Cordial Securities.
The benchmark Nikkei added 51.29 points to 9,114.13 and it rose 1.4 percent on the week, its biggest weekly gain in nearly two months. It has recovered about 3 percent this month following a 7.5 percent slide in August.
The broader Topix gained 0.5 percent to 823.70.
The next targets for the Nikkei will likely be around 9,280 and then 9,360, highs hit in late August. Its 25-day moving average currently comes in at 9,240.
If it resumes falling, the next technical level is 8,697, a 61.8 percent retracement of the rally from its March 2009 low to its April 2010 high.
Market players noted the Nikkei's gains over the past few days have filled in a gap on the charts that opened on August 31. Its MACD has also turned upwards after a bullish cross, suggesting upward momentum and a possible short-term rebound.
Koichi Nosaka, a market analyst at Securities Japan, Inc, said he expects the Nikkei to move between 8,800, near a 16-month low hit on Wednesday, and 9,200-9,300, around its 25-day moving average, in the coming week.
"As there's an 'SQ' next week, trade could become volatile due to derivatives-related moves, particularly from foreign investors. But if the U.S. jobs data is solid, the Nikkei could also test a level of its 25-day moving average," he said.
The closely watched settlement price for options and futures, known in Japan as the special quotation or "SQ", is calculated from the opening prices of the 225 shares on the Nikkei average on the second Friday of the month. It is calculated monthly for options and every three months for futures.
EXPORTER GAINS
Exporters gained. Canon Inc rose 1.3 percent to 3,550 yen and Sony Corp gained 2.4 percent to 2,485 yen.
Sony announced it would expand its Qriocity video on demand service into five European countries this fall and add a new digital music service by year's end.
But Nidec Corp lost 2.5 percent to 7,400 yen after saying it would raise up to $1.2 billion in a convertible bond issue to fund acquisitions and investments, sparking worries over dilution to existing share value.
The bond, due in 2015 with a conversion price of 10,626 yen, could boost the number of shares outstanding by 6.5 percent, Nidec said.
Trade volume was the lightest in nearly two weeks, with only 1.39 billion shares changing hands on the Tokyo exchange's first section. Advancing shares outnumbered declining ones by roughly 2 to 1. (Editing by Edwina Gibbs)