* Buying of futures likely helped Nikkei - analysts
* Nikkei moves further away from 16-month lows
* Some wariness as China moves data release forward
By Aiko Hayashi and Shinichi Saoshiro
TOKYO, Sept 10 (Reuters) - Japan's Nikkei average rose 1.6 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 added to investor confidence, market players said, with blue-chip exporters leading the market's advance.
But the benchmark trimmed some gains towards the day's end as Chinese shares sagged and caution prevailed ahead of banking regulation changes to be made over the weekend.
"Upbeat data and the yen lifted stocks early on. But a dip in China stocks and wariness towards the weekend's events slowed the rise in the afternoon ," said Yumi Nishimura, deputy general manager at Daiwa Securities Capital Markets.
"There is some caution as China decided to release data over the weekend instead of next week. Participants also want to see how the new banking regulations are finalised."
Beijing moved the release of key economic data for August to Saturday from Monday, prompting speculation the numbers could trigger a reaction on financial markets.
Central bank and regulatory officials agreed tougher new global bank capital rules on Tuesday and have kept investors on tenterhooks until Sunday when their formal endorsement is expected.
The benchmark Nikkei ended the day 140.78 points higher at 9,239.17, pulling away from a 16-month low of 8,796.45 hit on Sept. 1. The benchmark gained 1.4 percent on the week.
The broader Topix gained 0.8 percent to 833.72.
Estimates by local brokerages just after the open showed Nikkei futures and options contracts expiring in September likely settled at 9,150.32. The Osaka Securities Exchange later confirmed the figure.
"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."
A win by ruling Democratic Party powerbroker Ichiro Ozawa, who is challenging Prime Minister Naoto Kan in a Party leadership vote on Sept. 14, would likely give a short-term boost to stocks while weakening Japanese government bonds and the yen, a Reuters poll showed on Friday.
Analysts say Ozawa appears likely to spend more heavily on economic stimulus.
The dollar changed hands at 83.92 yen, compared with the 15-year low of 83.34 yen hit this week.
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.
CANON JUMPS
Camera maker Canon Inc climbed 5.6 percent to 3,750 yen after the company said on Thursday it would spend as much as 50 billion yen ($596.2 million) to buy back up to 1.2 percent of its shares outstanding between Sept. 10 and Nov. 12 to improve its capital efficiency.
Nonferrous smelters gained on the back of the recent surge in prices of nonferrous metals. Copper and zinc for three-month delivery on the London Metal Exchange have hit four-months high over the past week on improved global demand prospects.
Sumitomo Metal Mining rose 1.1 percent to 1,207 yen and Mitsui Mining and Smelting gained 1.7 percent to 241 yen.
The market took in stride news that the Incubator Bank of Japan, an unlisted lender specialising in small business loans, was set 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.
Some 2.19 billion shares changed hands on the Tokyo exchange's first section, its highest volume since late July, boosted by trade related to the settlement of futures and options.
Advancing stocks outnumbered declining ones by more than 2 to 1. ($1=83.86 Yen) (Editing by Michael Watson)