* Ghosn, Kelly arrested for alleged financial misconduct
* Ex-Nissan execs were expected to be detained to trial
* NHK says Ghosn may be released as early as Friday (Updates and recasts with court rejecting prosecutors' appeal, adds context about possible bail conditions.)
By Kiyoshi Takenaka and Malcolm Foster
TOKYO, Dec 20 (Reuters) - A Tokyo court unexpectedly ruled not to extend the detention of Nissan's ex-chairman Carlos Ghosn on Thursday, meaning he may soon be released from jail where he has been since last month facing allegations of financial misconduct.
The Tokyo District Court said it had also decided against extending detention for Greg Kelly, a former Nissan executive who was arrested along with Ghosn on Nov. 19.
It later overruled an appeal by prosecutors against the decision, clearing the way for the possible release of the two men which public broadcaster NHK said could come as early as Friday.
The court did not disclose reasons for its decision and NHK said it was "extremely rare" for it to reject the prosecutors' request to extend detention.
If Ghosn and Kelly are granted bail, conditions may require them to apply for permission to travel overseas. They could also be barred from contacting Nissan officials.
Ghosn's lawyer Motonari Otsuru entered the tower-like Tokyo Detention Center where Ghosn and Kelly are held after dark, passing a crowd of waiting camera crews.
Otsuru left about 90 minutes later and did not make any comment, while Kelly's lawyer was not available for comment.
Both executives have not been able to make any public statements since their arrest, although local media have reported that they have denied wrongdoing.
Ghosn, who formed a carmaking alliance Nissan, Mitsubishi Motors Corp and France's Renault SA, was indicted on Dec. 10 for allegedly understating his income by about half over a five-year period from 2010, and re-arrested for the same alleged crime covering the past three years.
The 10-day detention period for the second allegation ran out on Thursday, and the court was widely expected to extend it for at least another 10 days. Granting bail to suspects who say they are innocent has until recently been unusual in Japan.
It was not clear how much bail would be, or if it would be granted. Activist fund manager Yoshiaki Murakami, arrested in 2006 for insider trading, paid an initial 500 million yen ($4.5 million) in bail.
The case has put Japan's criminal justice system under international scrutiny and sparked criticism for some of its practices, including keeping suspects in detention for long periods and prohibiting defence lawyers from being present during interrogations, which can last eight hours a day.
Japan has also come under fire for its 99.9 percent conviction rate.
The court's decision could reflect sensitivity to that criticism as well as changing attitudes, said Masashi Akita, a defence lawyer in Osaka with over 30 years' experience.
"They are very nervous about criticism of their lenient approach toward detention. This is a typical case of such changing, I suppose," Akita said in emailed responses to Reuters' questions. "I think this case has a big impact and effect on the Japanese justice practice, and such a move is favourable for the defence side."
Akita said it could take until the middle of next week for all procedures to run their course if the men are freed.
Ghosn's arrest marked a dramatic fall for a leader once hailed for rescuing Nissan from the brink of bankruptcy.
He has been detained in a small room without a heater and a toilet in the corner. Authorities have limited his opportunities to shower and shave, a person familiar with the matter previously told Reuters.
At the centre of allegations against Ghosn is his Nissan income, with Tokyo prosecutors charging him for failing to disclose compensation that he had arranged to receive later.
Nissan has said a whistleblower investigation also uncovered personal use of company funds and other misconduct.
The scandal has shaken the Nissan-Mitsubishi-Renault alliance, with Nissan CEO Hiroto Saikawa calling for changes to weaken the clout of Renault SA, which owns a controlling stake in Nissan.
Renault has so far not replaced Ghosn as its head, saying his compensation had been in compliance with its own guidelines.
Documents seen by Reuters showed that some discussions about compensating Ghosn out of the public eye were not confined to Nissan, but also included Renault executives. Renault told Reuters that any such pay would have had to be made public in France.
Nissan on Thursday said Saikawa earlier this week held a one-on-one meeting with Renault acting boss Thierry Bollore, saying Saikawa described the meeting as "positive". It did not disclose details of the discussions.
Nissan declined to comment on the court's decision. ($1 = 111.8700 yen)
Reporting by Kiyoshi Takenaka and Malcolm Foster; Additional reporting by Chris Gallagher and Tim Kelly; Writing by Ritsuko Ando and Malcolm Foster; Editing by Muralikumar Anantharaman, Christopher Cushing and Alexander Smith