* Foreigners gradually add Japan shares on hopes for recover in supply chain-analyst
* Nikkei seen posting small gains in Apr-June, outperforms US, XJ-Asia
* Power companies gain as nuclear plant restarts look more likely
By Ayai Tomisawa
TOKYO, June 30 (Reuters) - The Nikkei average was slightly higher on Thursday though it pulled back after hitting a fresh seven-week peak, partly encouraged by strong performances in other Asian markets.
The Nikkei was set to end the April-June quarter slightly higher, beating many of its peers, supported by signs that Japanese companies are recovering fast from damage after the devastating earthquake in March.
Power companies made hefty gains, with Kyushu Electric rising 4.5 percent after the governor of Saga prefecture, home to a 36-year-old nuclear plant operated by the utility on the southern island of Kyushu, signalled he was not opposed to restarting reactors there.
If there is such a restart it would be the first among 35 reactors shut for regular maintenance or kept idle since the March earthquake and tsunami triggered a radiation crisis at the Fukushima Daiichi nuclear plant on the northeast coast.
"It's true that we are seeing reassuring factors, such as a recovery in industrial output, and that some in the market are getting optimistic. But it's another question how many investors will actually put their money into stocks now," said Masato Futoi, a manager of cash stock trading at Tokai Tokyo Securities.
But others say that as the supply chain recovery is expected to accelerate from July, investors are increasing Japanese stocks in their portfolios.
"Foreign investors are cutting their short-selling positions on Japanese stocks gradually on hopes that the Tokyo market will recover in the second half of the year," said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.
The benchmark Nikkei was up 0.1 percent at 9,802.40 in afternoon trade, after rising to 9849.69, its highest since May 11.
The broader Topix rose 0.4 percent to 847.80.
RECOVERY HOPES
On the quarter, the Nikkei is up 0.6 percent so far, outperforming many other markets, including the U.S. S&P 500 , which has fallen 1.4 percent, and ex-Japan Asian-Pacific shares , which have lost 1.0 percent.
That is partly because Japanese shares fell so sharply in March after the country was hit by the massive earthquake and tsunami, followed by the nuclear plant crisis.
But its relative resilience also stems from hopes for the post-quake recovery, as some companies, such as carmakers and retailers, have revised up their outlooks in recent weeks.
Confidence was further boosted by data on Wednesday showing Japan's industrial output jumped 5.7 percent in May, rising at a much faster pace than in the previous month, as companies made steady progress in restoring supply chains hit by the earthquake.
Shares in Calsonic Kansei soared 11 percent to 484 yen after the auto parts supplier forecast a 5.5 percent rise in sales on Wednesday to 790 billion yen for the financial year ending March 2012, and a 35 percent increase in net profit to 21 billion yen.
Mitsubishi UFJ Financial Group rose 2.1 percent to 390 yen after Deutsche Securities raised its rating to "buy" from "hold", citing likely profit growth in domestic banking.
The brokerage said the bank's average return on equity was 6.4 percent in the year that ended in March, but that it expects an increase to 7.3 percent in the year ending in March 2013.
Universe Co , which runs supermarkets in northeast Japan, jumped 17 percent to an eight-month high of 1,453 yen after the supermarket operator said it would merge through a share swap with Arcs Co , which controls chains in Hokkaido. (Additional reporting by Hideyuki Sano; Editing by Michael Watson)