TOKYO, Nov 11 (Reuters) - The Nikkei average's recent bullish trend is expected to continue on Thursday, testing the closely watched 10,000 level on strengthening U.S. equities and recent falls in the yen against the dollar.
MSCI said on Thursday it will include three Japanese shares, including social networking site Gree Inc, in its MSCI Japan Index as of the close of Nov. 30, while it will remove four shares, such as consumer financing company Acom.
Underlying sentiment for the Nikkei turned even stronger as it reached a 4-½ month closing high of 9,830.52 the previous day, up more than 7 percent since the start of the month.
An unexpected rapid rally in the Nikkei has prompted domestic and foreign investors to buy back Japanese shares, resulting in the triggering of a series of stop loss orders between 9,700-9,800, traders said.
"The Nikkei will be supported due to ample liquidity conditions in global markets. There is a mood that the market is overheating, but the Nikkei could test 10,000 soon," said Hiroichi Nishi, general manager at Nikko Cordial Securities.
"The Nikkei will be supported as the yen continues to drift down against the dollar. Wall Street's rebound yesterday is also very encouraging," Nishi added.
Nikkei futures traded in Chicago closed at 9,880, up 0.7 percent from the Osaka close of 9,810.
Still, others said the Nikkei could face strong profit-taking pressure as it approaches 10,000 -- a level last reached on June 24.
Technical sales could also weigh on the Nikkei as short-term players may sell to protect options orders rumoured to be lined around 10,000.
But a decisive break above the level could trigger strong stop-loss buying.
"Sentiment is bullish, but the Nikkei would need more incentives to climb above 10,000. The yen needs to fall to the 83-level (against the dollar) for the Nikkei to rise beyond 10,000," a trader at a Japanese securities house said.
"Export shares are expected to lead the push up in the Nikkei, but we are not sure whether financials can extend their gains made the previous day," the trader said.
Bank shares rose the day before after the Financial Times reported that most major Asian banks may be exempt from planned new global regulations.
The benchmark Nikkei is likely to move between 9,750 and 9,950, market players said.
The Nikkei may face some resistance at the 200-day moving average, now at 9,940.
On Wednesday, Wall Street rose as banks, which had lost 3 percent over the past two sessions, rebounded.
The dollar hit a one-month high against the euro and yen as rising U.S. bond yields prompted traders to cut bets against the greenback but some gains were lost late in the day.
In early Asian trade, the dollar traded at 82.20 yen after rising as high as 82.80 yen the previous day.
STOCKS TO WATCH
-- MSCI announced on Thursday the following shares will be added to MSCI Japan Index as of the close of Nov 30: Gree Inc, Miraca Holdings and Nabtesco Corp.
-- Canon Inc
Canon Chairman Fujio Mitarai aims to expand the company's medical equipment sales to 100 billion yen ($1.22 billion) by 2015, about three times the current level, he said in a speech on Wednesday.
-- Shinsei Bank
Shinsei kept its full-year outlook on Wednesday, even after its first-half earnings handily topped its annual target, citing uncertainty over its consumer finance business.
-- Kansai Paint
Kansai Paint said it has purchased 27.6 percent of South Africa's Freeworld Coatings to help fuel its overseas expansion, and it had not decided whether to increase its stake. (Reporting by Chikafumi Hodo; Editing by Joseph Radford)