* Foreigners may buy Japan stocks next week
* Japan fund managers locked in profits in Nov-research firm
TOKYO, Dec 21 (Reuters) - Japan's Nikkei average rose 0.7 percent on Tuesday as investors hunted for bargains in recent decliners, but volume was low due to an absence of foreign participants before the Christmas holidays.
Analysts say the market is expected to see directionless trading with thin volume this week, but may be re-energised next week when foreign investors return from the holidays.
"We may see some window-dressing buying at the end of the month, something of a trend every year," said Fujio Ando, senior managing director at Chibagin Asset Management.
"They may buy large cyclical stocks at the year-end, and the Nikkei may rise further," Ando said.
Others said hedge funds were expected to be major buyers.
"Investors are expected to continue selling bonds and buying equities, and hedge funds are likely to be the main players behind such moves," said Masanaga Kono, chief strategist at Amundi Japan.
Hedge funds remain on track to finish the year on a high note, according to Eurekahedge, a hedge fund research company based in Singapore. It said that the Eurekahedge Hedge Fund Index gained 0.40 percent in November, marking the fifth consecutive month of positive returns.
It added that returns across most regional hedge fund mandates were muted, with the exception of Japanese managers who reported gains of 2.57 percent. "Positive movements in the Japanese markets provided managers with ample opportunities to lock in substantial gains," Eurekahedge said.
In November, the Nikkei rose above 10,000 points for the first time since June, and finished the month with an 8 percent gain. The Topix ended the month 6.2 percent higher.
"The November rallies provided the good base for the coming months," Amundi Japan's Kono said.
On Tuesday, the benchmark Nikkei gained 67.50 points to 10283.91 by midmorning, while the broader Topix rose 0.3 percent to 901.63.
The Nikkei will likely trade between 10,150 and 10,300, analysts said, after shedding 0.9 percent to 10,216 on Monday.
Market analysts added that receding tensions in the Korean Peninsula provides comfort to the market.
North Korea stepped back from confrontation over "reckless" military drills by the South on Monday and reportedly issued a new offer on nuclear inspections, drawing a cautious response from Seoul and Washington. (Reporting by Ayai Tomisawa; Editing by Chris Gallagher)