HONG KONG (Reuters) - Trend-following hedge funds reversed their bearish views on Japanese stocks and started buying them late last week, J.P.Morgan analysts said in a note.

Such hedge funds, known as commodity trading advisers or CTAs, use algorithms to profit from market trends.

CTAs may have restored their positions in Nikkei 225 futures and TOPIX futures, starting around Aug. 15, after a recent selloff as "the index rebound is too large," J.P.Morgan analysts said in a note on Friday.

The shift was faster than the brokerage had previously anticipated. J.P.Morgan analysts had expected CTAs to take a wait-and-see approach if the Nikkei share index temporarily recovered to above 35,000 after the early-August rout.

The benchmark Nikkei 225 index has rallied more than 20% from the lows hit on Aug. 5, when it clocked its biggest one-day plunge since 1987. It closed above the 38,000 level on Friday.

Analysts cited the massive deleveraging of systematic trading strategies by CTAs as one factor that drove the global market meltdown that was sparked by an unexpected Bank of Japan rate hike.

A systematic trading strategy uses strict rules rather than a speculator's gut feeling, and sometimes includes coding and algorithms, to guide trading and investment decisions.

The panic, that caused a huge unwinding of global yen-funded trades, subsided after Bank of Japan Deputy Governor Shinichi Uchida assured markets that interest rate rises will be gradual, Japan's strong second-quarter economic data and as fears of a U.S. recession eased.

CTAs are estimated to have dumped about 50% of their long positions of Nikkei futures by Aug. 9, Masanari Takada, global quantitative and derivatives strategist at J.P.Morgan, said.

The SG Trend index, which tracks the daily rate of return for a pool of CTAs, has fallen 4.4% in the first 15 days of this month.

Despite huge losses during the recent market turmoil, the performance of trend-following funds and macro funds has started to pick up, Takada added.

CTAs were doing "testing-the-water buying," J.P.Morgan said, adding that if the recovery in Japanese stocks is sustained, other macro hedge funds, CTAs and funds chasing the momentum will also return to the market.