(Updates with closing prices)

TOKYO, Dec 27 (Reuters) - Japan's Nikkei share average

ended at a five-month closing high on Friday, as investors bet

on corporate growth in the coming year, with recent automakers'

news lifting sentiment.

The Nikkei jumped 1.8% to 40,821.16, its highest

close since July 17. The index gained for a third session and

rose 4% this week, the strongest weekly performance since

September.

The broader Topix rose 1.26% to 2,801.68.

"The market cheered recent news of domestic firms, such as

merger talks between Honda ( HMC ) and Nissan ( NSANF ). That drove expectations

that Japanese firms will continue to improve investor returns,"

said Kentaro Hayashi, senior strategist at Daiwa Securities.

Honda Motor ( HMC ) and Nissan Motor ( NSANF ) said this

week they are in talks to merge by 2026, a historic pivot for

Japan's auto industry that underlines the threat Chinese EV

makers now pose to the world's long-dominant legacy car makers.

Honda ( HMC ) rose 2.07%, while Nissan ( NSANF ), which has risen 42% so far

this month, slipped 7.82%.

Toyota Motor ( TM ) advanced 1.4%, becoming the biggest

source for the Topix's gain. The shares rose for a third session

after local media reported this week the automaker would double

its return on equity target to 20% by around 2030.

A surprise unsolicited takeover bid by Japanese

manufacturing giant Nidec for Makino Milling Machine ( MKMLF )

also drove expectations for better returns, said

Hayashi.

Shares of Makino surged 19.35% to close at a daily limit of

9,250 yen, which is lower than Nidec's offer price of 11,000

yen. Nidec jumped 4.14%.

Uniqlo-brand owner Fast Retailing ( FRCOF ) rose 2.7%, giving

the biggest boost to the Nikkei. Chip-testing equipment maker

Advantest ( ADTTF ) rose 3.87%.

Seiichi Suzuki, chief equity market analyst at Tokai Tokyo

Intelligence Laboratory, said the momentum was strong as retail

investors' sales were done by Thursday, the last day for the

delivery of stocks for 2024.

Of the more than 1,600 stocks trading on the Tokyo Stock

Exchange's prime market, 82% rose and 15% fell, with 1% flat.