* April Nikkei options seen settling at 9,612.51
* Fast Retailing surges after raising outlook, boosts Nikkei
* TSE delays extension of trading hours due to power cuts
* Volumes drop as investors move to sidelines ahead of U.S., Japan earnings
By Chikafumi Hodo and Antoni Slodkowski
TOKYO, April 8 (Reuters) - A strong performance from major retailers pushed up Tokyo stocks by nearly 1 percent on Friday after April options prices were seen settling higher than expected, offsetting the impact of a major earthquake which rocked northeast Japan the night before.
A decisive break above 9,612.51 -- the level where options settled -- and a 10 percent jump by Tokyo Electric Co , after no further damage was reported at its crippled nuclear plant after last night's aftershock, spurred buying, with players adjusted their positions ahead of the start of the earnings season in the U.S. and Japan.
But low volumes suggested the move was temporary and that investors still see a lot of downside in the coming months.
The market was bolstered by Fast Retailing , with almost a 5 percent weighting in the market, which jumped 6.7 percent to 11,880 yen in heavy trade after the operator of the Uniqlo casual-clothing chain raised its annual outlook.[ID:nL3E7F801W]
"People are buying shares for now, but it's not going to last long," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"Fundamentals remain unclear and extreme uncertainty surrounding earnings, with many firms set not to provide annual forecasts will keep a lid on the market's gains."
By the midday break, the benchmark Nikkei index was 0.9 percent higher at 9,678.68, while the broader Topix index was up 0.7 percent at 846.59
Volume hovered at 1.3 billion shares on the Tokyo bourse's main board despite the options settlement which would normally push it higher, suggesting it would come only slightly above Thursday's volume which was the lowest since the March 11 quake.
Tokyo shares have regained more than half of the losses posted since the disasters, but power shortages, lost production and lack of progress in bringing the stricken nuclear plant under full control could send the Nikkei to 9,200-9,300 levels around mid-May, some analysts said.
In the long run, Barclays Capital has said it expects companies listed on the TSE's main board to post on average a fall of 12 percent in net profit for this financial year compared with its pre-quake forecast of a rise of 14 percent.
The closely watched settlement price, known in Japan as the special quotation or "SQ", is calculated from the opening prices of the 225 shares on the Nikkei average on the second Friday of the month.
"Once the SQ price was confirmed, we saw the market go back up to 9,600. What's going to be really interesting is to see if 9,612 will become resistance, or if the market can clear this level today and then it will become support," said Sunil Sadhwani, CEO of Hamabay Capital LLC.
Sadhwani added he was looking at the 9,300-9,200 level as an "absolute bottom" and said that if the benchmark index was to fall below that line, another free-fall would be triggered.
RETAILERS GAIN
Apart from Fast Retailing, which replaced Tokyo Electric as the most actively traded share by turnover on the TSE's main board for the first time since the quake, Japan's biggest retailer, Seven & I Holdings Co also jumped 2.6 percent.
It forecast a 1.9 percent gain in operating profit to 248 billion yen ($2.9 billion) for the financial year that began in March. During the final quarter of its last business year, operating profit jumped 21 percent to 67.6 billion yen. [ID:nL3E7F70L1]
GS Yuasa Corp jumped 5.1 percent to 556 yen after the Nikkei business daily said it plans to supply lithium ion batteries for electric vehicles to French automaker PSA Peugeot Citroen SA. [ID:nL3E7F801W]
Nippon Steel , the world's No.4 steelmaker, rose 1.2 percent to 256 yen after news that it is in talks with Tatt Giap to boost its stake in their Malaysian joint venture.[ID:nTOE736006]
The steel company and other resource-related shares also benefited from higher commodity prices, with oil hitting a 2-1/2 year high and copper reaching its highest in two weeks. The 19-commodity Reuters-Jefferies CRB index climbed 0.3 percent, finishing higher for a sixth straight session.
Underscoring worries related to summer power cuts, the Tokyo Stock Exchange said it will delay a plan to extend trading hours so as to reduce power consumption, as Japan seeks to save electricity in Tokyo and northern prefectures in anticipation of peak summer demand. (Reporting by Antoni Slodkowski; Editing by Joseph Radford)