*

SoftBank Group, Yaskawa outperform market after SoftBank

deal to

buy ABB's robotics arm

*

Nikkei has rallied strongly this week with fiscal dove

Takaichi

set to become premier

*

Analysts warn of potential for Nikkei volatility amid

signs of

overheating

(Updates with closing prices)

By Kevin Buckland

TOKYO, Oct 9 (Reuters) - Japan's Nikkei share average

rallied to a fresh high on Thursday, with index heavyweight

SoftBank Group surging more than 11% as investors

bought into its vision of artificial intelligence-powered

robots.

Robot manufacturer Yaskawa Electric ( YASKF ) also shot up

9.5%, with those two stocks handily outperforming all others on

Japan's share benchmark.

The tech-heavy Nikkei climbed 1.8% to finish the day

at 48,580.44, close to the intraday peak of 48,597.08 - both

record levels.

SoftBank alone added 466 points to the Nikkei's 845-point

rally.

The broader Topix, by contrast, gained a more muted

0.7% to 3,257.77.

SoftBank said late in Wednesday's trading session that it

had bought the robotics business of Switzerland's ABB,

taking forward the Japanese startup investor's strategy to fuse

robotics and AI, although the announcement was largely ignored

by the market initially.

"The moves in SoftBank and Yaskawa are so big compared to

everything else, it's easy to think this is a delayed reaction,"

said Masahiro Ichikawa, chief market strategist at Sumitomo

Mitsui DS Asset Management. "It feels a little overdone."

The Nikkei may be ripe for a pullback, with an oft-cited

gauge known as the relative strength index (RSI) at 77.6, well

above the 70 level generally considered as an indicator of

overheating.

The auto sector was notably among the worst

performers from the Tokyo Stock Exchange's 33 industry groups,

after reaching the highest level since the middle of last year

on Wednesday.

The sector slid 1.3% despite persistent weakness in the yen

, which buoys the value of overseas sales. Toyota ( TM )

dropped more than 2%.

Japanese stocks were supercharged at the start of the week

after fiscal dove Sanae Takaichi was elected as the head of the

ruling Liberal Democratic Party, setting her up to become the

country's next prime minister.

However, her ascension is not assured, with her right-wing

hardline conservative politics creating friction with coalition

partner Komeito, and the government holding a minority of seats

in both houses of parliament.

The market could see additional volatility after Uniqlo

parent Fast Retailing ( FRCOF ) unofficially kicked off the

earnings season with after-the-bell results on Thursday. The

stock ended the day 3.4% higher ahead of that.

Daiwa Securities strategist Kenji Abe forecasts the Nikkei

can rally to 50,000 by the end of Japan's fiscal year in March.

"Earnings are improving," he said. "The Nikkei can rise

further."

At the same time, "politics are important, and can inject

near-term volatility," he said. "The market has high

expectations for Takaichi's policies."

(Reporting by Kevin Buckland; Editing by Subhranshu Sahu)