October 3, 2017 / 6:49 AM / a year ago

Nikkei hits 2-year highs, tracks Wall Street gains

* Both Nikkei and Topix hit fresh 2-year highs

* Nikkei eying 21-year high

* Asatsu-DK jumps after Bain say to buy co

By Ayai Tomisawa

TOKYO, Oct 3 (Reuters) - Japanese stocks rose more than 1 percent to hit two-year highs on Tuesday, tracking Wall Street's rally after new data pointed to underlying strength in the U.S. economy, while a weaker yen also helped overall sentiment.

The Nikkei rose 1.1 percent to 20,614.07, the highest closing level since mid August 2015.

The broader Topix gained 0.7 percent to 1,684.46, also the highest closing level since mid August 2015.

Wall Street stocks rose with all three major indexes posting record-high closes after the Institute for Supply Management's (ISM) index of U.S. manufacturing activity surged to a near 13-1/2-year high in September.

Market participants said investors turned to positive factors in the market such as strength in the U.S. economy, while geopolitical tensions between the U.S. and North Korea, which roiled the market last month, have receded for now.

"Since there are no serious moves (from both sides) now, major concerns that worried the market recently have been fading for now," said Hikaru Sato, a senior technical analyst at Daiwa Securities. "The market takes heart from a weakening yen, and is focused on more developments and headlines related to Japan's election."

Japanese Prime Minister Shinzo Abe last week dissolved the parliament's lower house and called a snap election for Oct. 22.

Abe called the general election hoping to keep his conservative Liberal Democratic Party-led coalition's majority in the lower house.

However, his bet now looks increasingly shaky, given growing support for a new party formed by the popular governor of Tokyo, which is drawing candidates from other opposition parties.

The dollar rose 0.4 percent to 113.15 yen, underpinning overall sentiment, with 32 of Topix's 33 subsectors in positive territory.

Both defensive stocks and exporters gained ground, with realtor Mitsui Fudosan Co soaring 3.9 percent, Mitsubishi Estate Co rising 2.5 percent, drugmaker Eisai Co adding 2.6 percent, Honda Motor Co advancing 1.1 percent and Fanuc Ltd surging 1.8 percent.

Meanwhile, advertising agency Asatsu-DK Inc jumped 20 percent after Bain Capital disclosed plans to buy it for 152 billion yen ($1.35 billion). (Reporting by Ayai Tomisawa; Editing by Sam Holmes and Eric Meijer)

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