* Nikkei, Topix get near to August peaks
* Fed easing supports sentiment on economy
* Profit-taking curbing rally in Japanese shares
By Hideyuki Sano
TOKYO, Sept 19 (Reuters) - Japanese shares rallied to close in on this year's peaks on Thursday, with domestic demand-led shares leading gains after a rate cut by the U.S. Federal Reserve helped boost risk sentiment.
The Nikkei share average rose as much as 1.34% to 22,255.56, edging near its year-to-date high of 22,362 hit in late August. It closed up 0.38% at 22,044.45.
The broader Topix gained up to 1.24% to 1,626.52, coming within reach of its Aug. 17 peak of 1,633.96. It ended 0.56% higher at 1,615.66.
The market's gains were trimmed after the Bank of Japan kept its policy on hold, a widely expected decision but still disappointing some players who had bet the BOJ to act in-step with the Fed and the European Central Bank in easing.
The Fed cut interest rates for a second time this year, although it signalled further rate cuts are unlikely as the labour market remains strong.
Japanese index players were taking profits as the indexes neared the peaks while other players were rebalancing into shares dependent on domestic demand.
Among them, Recruit Holdings gained 3.1% while Mitsubishi Estate rose 2.0%.
High-yielding power company shares were also bought after the U.S. interest rate cut.
Kansai Electric Power Co Inc rose 2.7% and Chubu Electric Power gained 1.7%.
Railway operators were also in favour. Keisei Electric Railway closed at a near three-decade high, ending 1.6% higher. Odakyu Electric Railway rose 2.4%.
Despite lingering worries about the U.S.-China trade war, hopes that the worst may be over soon are supporting the market, especially in the battered semi-conductor sector.
Advantest Corp rose 1.5% and Shin-etsu Chemical went up 0.6%.
Broader electronics makers also did well, with Fujitsu rising as much as 3.3% to hit a 21-month high and Oki Electric gaining 1.8%.
Still, while signs that Washington and Beijing are ready to resume their trade talks have helped to ease investor sentiment in recent weeks, many market players are not convinced how far the Nikkei's rally can continue.
"In the past, you were better off selling when the market has risen on hopes of a trade deal," said Naoya Oshikubo, senior manager of research at Sumitomo Mitsui Trust Asset Management.
Japan Tobacco bucked Thursday's trend, falling 0.7% after India banned the sale of electronic cigarettes.
Editing by Richard Borsuk