* Nikkei climbs 1.7 pct
* Buying of futures boosts sentiment in cash market
* Bounce back in dollar seen short-term positive factor
* Corporate earnings may give boost this quarter -analysts
By Ayai Tomisawa and Antoni Slodkowski
TOKYO, Jan 4 (Reuters) - Japan's Nikkei stock average climbed to a 7-½ month closing high on its first day of trading for the year, helped by strong global manufacturing data that lifted equities worldwide and by a bounce in the dollar against the yen.
Buying of Nikkei futures bolstered the cash market, with analysts saying there were few sell orders and adding that sentiment for the index remains positive after a strong run that has seen it gain 13 percent since November.
"Investors may stay cautious before U.S. jobs data this Friday, but they are optimistic overall," said Hiroichi Nishi, general manager at Nikko Cordial Securities.
This quarter, expectations for decent results from U.S. and Japanese firms will likely provide momentum for further gains, analysts said.
"U.S. corporate earnings releases for the October-December quarter kicking off next week will likely to provide strength and drive global markets higher this month," said Tsuyoshi Segawa, equity strategist at Mizuho Securities.
"I wouldn't be surprised if the Nikkei tests the 11,000-line this quarter."
The benchmark Nikkei finished 1.7 percent or 169.18 points higher at 10,398.10.
The broader Topix index gained 1.5 percent to 911.80.
Investors piled into lagging Tokyo equities late last year, helping the Nikkei limit its losses for 2010 to 3 percent.
A Reuters poll last month showed the Nikkei is likely to end 2011 at the pre-Lehman level of 12,000, according to a median forecast of 24 market participants.
U.S. manufacturing grew for a 17th straight month, the Institute for Supply Management said on Monday. The data followed reports of faster growth in European manufacturing and bolstered investors' appetite for riskier assets.
A bounce in the dollar back to about 82.20 yen after it slipped below 81 at the year-end to its lowest in nearly two months was also seen as a positive short-term factor, traders said, although the dollar's recent softness is likely to weigh on exporters' shares in the long run.
Trading volume picked up from year-end lows, with a total of 1.6 billion shares changing hands on the Tokyo Stock Exchange's first section, above its previous week's average of 1.28 billion shares.
Advancing issues outpaced declining ones by a ratio of about 15 to 1.
Resource-related companies were in favour as oil prices traded near a 27-month peak hit on Monday following the upbeat European and U.S. manufacturing data and forecasts of cold weather.
Inpex Corp, Japan's top oil and gas developer, surged 4 percent to 494,500 yen.
Other commodity stocks also rallied on broad gains in commodities prices. Massive floods in Australia disrupted a big chunk of the world's metallurgical coal supply, while copper hit record highs and natural gas posted its biggest gain in more than a month.
Nonferrous metals smelter Sumitomo Metal Mining Co rose 2.1 percent to 1,449 yen and Dowa Holdings Co gained 3.2 percent to 550 yen.
Banks and other financial shares rose in the wake of gains in their U.S. counterparts, with Mizuho Financial Group becoming the most actively traded stock by volume on the Tokyo Stock Exchange's first section. Mizuho gained 2 percent to 156 yen. (Editing by Edwina Gibbs)