* Nikkei up 0.2 pct, but lacks clear direction
* Yen stays buoyant vs dollar in Asia, weighs on shares
* But long-term outlook bright for Japan stocks
By Chikafumi Hodo
TOKYO, Dec 29 (Reuters) - Japan's Nikkei average inched up on Wednesday as investors bought on dips amid hopes that Tokyo stocks will stay bullish entering 2011, though a firmer yen limited strong follow-through buying.
The Nikkei moved in a tight range throughout the morning, struggling to find a distinct direction due to a dearth of fresh trading factors in thin year-end trading, analysts said.
Still, market participants were upbeat heading into next year, as Japanese stocks are still cheap compared with those in other developed markets even after having gained nearly 10 percent in the last quarter of 2010.
"There is no solid reason to sell Japanese shares actively as the outlook for the market is still bright. Many investors are keen to hold on to their buy positions," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"Investors will be entering 2011 on a bullish note, so I think there is still a chance for the Nikkei to test 10,500 in the near term."
The benchmark Nikkei closed the morning session up 0.2 percent or 17.31 points at 10,309.94.
The broader Topix index advanced 0.2 percent or 1.68 points to 904.51.
Market participants may be still keen to push the Nikkei above last year's close of 10,546.44 by the final trading day on Thursday, analysts said.
A Reuters poll showed earlier in the month that Japanese stocks are likely to end next year roughly 17 percent above current levels, helped by a recovery in the U.S. economy and robust performances from emerging markets.
Many foreign players stayed on the sidelines, but they have been active buyers the past few months.
Finance Ministry data showed last week that foreigners' net purchases of Japanese stocks hit their highest since April, rising to a net 224.4 billion yen in the week to Dec. 18.
Foreign investors were net buyers of Japanese stocks for a seventh straight week, with total net purchases during those seven weeks of 1.05 trillion yen.
YEN STRENGTH
The near-term trend for Japanese stocks has been hurt by the yen's recovery.
The dollar was down 0.1 percent at 82.32 yen in early Asian trade after falling as low as 81.81 yen, its lowest since November, on Tuesday.
Investors were cautious about taking fresh buy positions in Japanese shares after seeing downbeat U.S. consumer confidence data the previous day.
U.S. consumer confidence unexpectedly deteriorated in December, hurt by increasing worries about the labour market, while the price of U.S. single-family homes fell almost double the expected pace in October.
"The market is turning nervous as the yen is regaining strength. Weak U.S. economic indicators released yesterday are also making the market cautious," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.
Shares of exporters fell, hurt by the firmer yen. Sony fell 0.5 percent to 2,942 yen and Canon Inc dropped 0.8 percent to 4,200 yen.
The strength in oil prices, with the key U.S. crude oil futures staying near two-year highs, pushed up resource-related firms and trading companies.
Inpex Corp, Japan's top oil and gas developer, gained 1.1 percent to 487,500 yen.
Hitachi Ltd advanced 1.9 percent to 423 yen after a report by the Nikkei daily that the country's biggest electronics conglomerate said it will review the operations and its capital relationships with a quarter of its roughly 40 businesses. (Reporting by Chikafumi Hodo; Editing by Chris Gallagher)