Nikkei gains 2.9 pct after Fannie, Freddie bailout

(Updates to midmorning)

TOKYO, Sept 8 (Reuters) - The Nikkei average gained 2.9 percent on Monday as financial issues such as Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research, Stock Buzz) surged after the U.S. government's bailout of troubled mortgage finance companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) boosted investor confidence.

Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz) and other exporters powered higher on a softer yen and improved investor sentiment, leading the benchmark to erase the sharp losses it booked on Friday on the gloomy outlook for the global economy.

"We seem to have hit bottom for now," said Takahiko Murai, general manager of equities at Nozomi Securities.

"It's a huge step forward that the U.S. government started taking drastic measures to deal with financial problems, one of the two problems we have faced along with the economy."

The takeover of the U.S. finance companies is the latest move by Washington to shore up the slumping housing market and was taken to ward off more global financial market turbulence. [ID:nN07479172] [ID:nN07463067]

U.S. stock index futures surged on Sunday, pointing to a sharply higher opening on Wall Street on Monday after the news. [ID:nN07379425]

By 0032 GMT the benchmark Nikkei average .N225 added 357.78 points to 12,570.01, after booking the lowest close since March 18 on Friday. It fell 6.6 percent for the week.

The broader Topix .TOPX climbed 3.4 percent to 1,210.46.

Japanese bank shares gained, with industry leader Mitsubishi UFJ soaring 9.6 percent to 822 yen, while Sumitomo Mitsui Financial Group (8316.T: Quote, Profile, Research, Stock Buzz) shot up 9.7 percent to 642,000 yen.

The dollar climbed 0.7 percent to 108.55 yen <JPY=> and touched as high as 109.05 on EBS. Investors welcome a softer yen as it boosts exporters' overseas profits when they are brought home.

Sony gained 2.6 percent to 3,980 yen and Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) jumped 3.4 percent to 4,910 yen. (Reporting by Aiko Hayashi; Editing by Michael Watson)