* Buying of futures likely helping Nikkei - analysts
* Nikkei moves further away from 16-month lows
* Next targets seen at 9,410, 9,530
* Little impact from bankruptcy news of small Japan bank
By Aiko Hayashi and Shinichi Saoshiro
TOKYO, Sept 10 (Reuters) - Japan's Nikkei average rose 2 percent on Friday, helped by what some market players said was buying of futures and a slight softening of the yen against the dollar.
Stronger-than-expected U.S. data on jobless benefits and trade and an upward revision to Japan's second-quarter GDP, though widely expected, added to investor confidence, market players said, with blue-chip exporters leading the market's advance.
"Easing of European financial worries and dollar/yen trading in the 84 yen level prompted some short-covering," said Kenichi Hirano, operating officer at Tachibana Securities.
"Further upward impetus came from funds that had waited until they saw the settlement price of options and futures to join buying in the market."
The benchmark Nikkei rose 181.42 points to 9,279.81 by the lunch break, pulling away from a 16-month low of 8,796.45 hit on Sept. 1.
The broader Topix gained 1.5 percent to 838.89.
Estimates by local brokerages just after the open showed Nikkei futures and options contracts expiring in September likely settled at 9,150.32. The official settlement price will be announced by the Osaka Securities Exchange after the closing bell.
"The special quotation every three months is a chance for participants to take on fresh positions," said Shoji Yoshigoe, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"There appears to be more buyers of futures this time around ahead of the ruling party vote next week. The buyers seem to be preparing for a possible Ozawa win. The outcome is very difficult to predict, but it would be too late to start buying futures after the vote."
Many market players say a victory by Ichiro Ozawa, who is challenging Prime Minister Naoto Kan in a ruling Democratic Party leadership vote on Sept. 14, would likely give the stock market a lift, at least initially, as Ozawa appears likely to spend more heavily on economic stimulus.
In early Asian trade, the dollar changed hands at 84.24 yen, compared with the 15-year low of 83.34 yen hit this week as investors bet Japanese authorities were not ready to intervene to weaken their currency.
U.S. stocks edged up after new U.S. claims for unemployment insurance fell more than expected last week to their lowest level in two months.
The U.S. trade deficit narrowed more than forecast in July as exports shot to the highest level since August 2008, painting a rosier picture for economic growth.
On the charts, the Nikkei faces resistance at 9,410, around its 13-week moving average, which has served as solid resistance since late August. After that, the bottom of the Nikkei's Ichimoku cloud lies around 9,530. Ichimoku charts are popular with Japanese traders.
Market analysts see support around 8,800, a level the Nikkei has tested and held a few times in recent weeks, and after that the next target is 8,697, a 61.8 percent retracement of the Nikkei's rally from its March 2009 low to its April 2010 high.
CANON JUMPS
Camera maker Canon Inc climbed 5.9 percent to 3,760 yen after the company said on Thursday it would spend as much as 50 billion yen to buy back up to 1.2 percent of its shares outstanding between Sept. 10 and Nov. 12 to improve its capital efficiency.
Other exporters rose, with Kyocera Corp gaining 2.5 percent to 7,730 yen and Tokyo Electron Ltd jumping 4.2 percent to 4,175 yen.
Nonferrous smelters gained on the back of the recent surge in prices of nonferrous metals. Copper and zinc for three-month deliveries on the London Metal Exchange have hit four-months high over the past week on improved global demand prospects.
Sumitomo Metal Mining rose 1.6 percent to 1,213 yen and Mitsui Mining and Smelting gained 2.5 percent to 243 yen.
Amid the market's broad-based gains, banking stocks also rose, with Japan's top lender Mitsubishi UFJ Financial Group advancing 1.5 percent to 408 yen.
The gains came even after Japan's financial regulator said the Incubator Bank of Japan, a small, unlisted lender that specialises in small business loans, was expected to file for bankruptcy protection on Friday.
Market players said they saw little impact on the overall market, citing the special nature of its business, while the Bank of Japan said it expected no adverse impact on the country's banking system from the small lender's failure.
Incubator Bank was established in 2004 to help prop up the country's struggling small businesses. (Editing by Chris Gallagher)