* China, Aussie data give Nikkei a lift
* An apparent halt in yen advance buoys stocks -analyst
* Next target for Nikkei at 8,697, 61.8 pct retracement
* But investors eye U.S. data, worry about more dlr selling
TOKYO, Sept 1 (Reuters) - Japan's Nikkei rose 1.1 percent after hitting a 16-month low on Wednesday, drawing support from a halt in the rapid advance in the yen on a manufacturing rebound in China and stronger-than-expected growth in Australia.
Market players said other help came from a slight spike in dollar/yen after news that Japanese political powerbroker Ichiro Ozawa, challenging Prime Minister Naoto Kan in a party leadership vote, said in a policy statement he would implement steps including currency intervention if the yen rose rapidly.
"Investors welcomed growing signs of a halt in the advance in the yen against the dollar, stemming from yen crosses after Australian growth data showed improvement and China's data came in strong," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.
"Ozawa's comment on intervention is probably an additional positive factor, but the main catalysts for stock gains are signs of a stop in the yen's fast advance and the solid performance in other Asian stocks."
The benchmark Nikkei rose 96.10 points to 8,920.16, after earlier falling as low as 8,796.45, its lowest since April 2009.
The broader Topix added 0.6 percent to 809.31.
China's official purchasing managers' index rose to 51.7 in August from a 17-month low of 51.2 in July, while Australia's economy grew a stronger-than-expected 1.2 percent in the second quarter.
The Australian dollar rose 1.1 percent to 75.92 yen and the greenback edged up 0.4 percent to 84.50 yen.
Ozawa said in a statement that he would use 2 trillion yen ($23.76 billion) of reserve funds in the budget for the current fiscal year to next March for economic steps.
But market players said some investors were likely to stay sidelined with the battle between Kan and Ozawa for leadership of the ruling party, and hence the premiership, opening on Wednesday. The party will hold its leadership vote on Sept. 14.
Shortly after the opening the benchmark fell below 8,800 for the first time in 16 months, with market players saying sentiment remained fragile with investors worried about possible negative surprises from a slew of U.S. indicators due out this week, including jobs data.
ADP private employers data is due out later on Wednesday, with non-farm payrolls on Friday.
The next target for the Nikkei is 8,697, a 61.8 percent retracement of the Nikkei's rally from its March 2009 low to its April 2010 high.
HITACHI UP, CHINA-LINKED STOCKS HIGHER
Shares of Hitachi Ltd climbed 2.1 percent to 347 yen after sources familiar with the matter said the company is planning an initial public offering of its hard-drive unit in the United States, possibly by the year-end.
Sources said bankers are in discussion with the Japanese company about an IPO and underwriters could be named in early September. The hard-drive unit, Hitachi Global Storage Technologies (HGST), is the world's No.3 hard drive maker and analysts said it could be valued at about $3 billion.
Shares of companies with strong businesses in China gained, with Hitachi Construction up 2 percent to 1,703 yen and Komatsu rising 1.4 percent to 1,729 yen.
Tech shares that were sold sharply on Tuesday crawled higher, but exporters erased early gains to head lower, with some blue-chip shares hitting multimonth lows.
Toyota Motor Corp was down 0.8 percent at 2,837 yen, after falling as low as 2,806 yen, its lowest in about 17 months.
Toshiba Corp was down 2.5 percent at 385 yen after hitting its lowest in 13 months and Sharp Corp was down 0.9 percent at 797 yen after touching its lowest in 17 months. (Reporting by Aiko Hayashi; Editing by Joseph Radford)