Nikkei rebounds 0.9 pct on exporters, eyes on yen

* Dlr/yen around 90 yen helps exporters recoup ground

* Deflation worries likely cap further market gains -analyst

TOKYO, Sept 29 - Japan's Nikkei average rose 0.9 percent on Tuesday, with exporters such as Kyocera Corp rebounding after the yen pulled back from an eight-month high against the dollar.

The dollar recovered to around 90 yen after dropping to as low as 88.23 yen on Monday after Japan's finance minister stoked speculation the new government was unlikely to intervene to weaken its currency. That hit shares of exporters and sent the Nikkei average to a two-month closing low.

Many exporters have set rate assumptions around 90-95 yen.

"Today's gains are due to a rebound as dollar/yen moves have calmed down a bit. Still, investors are increasingly taking a wait-and-see approach as moves in the currency market remain unstable," said Fumiyuki Nakanishi, manager at SMBC Friend Securities.

"The rebound is also likely to be limited because of growing worries about deflation. Deflation is not good for the stock market as it pressures corporate profits."

Data showed that Japanese core consumer prices fell a record 2.4 percent in August from a year earlier, as weak final demand adds to pressure from a slide in oil prices, raising questions about the Bank of Japan's view that deflation will not warrant more policy action.

The benchmark Nikkei gained 88.49 points to 10,098.01. The index slid 2.5 percent the previous day to end at 10,009.52, its lowest close since July 24. It also hit a two-month intraday low of 9,971.05. It has lost about 5 percent in the past two trading days.

The broader Topix added 0.3 percent to 905.60.

The Standard & Poor's 500 Index gained 1.8 percent on Monday as a spurt in corporate takeovers in the technology and healthcare sectors fuelled optimism about share values.

The dollar was trading around 90.20 yen in early Asia trade as the yen has surrendered gains as Finance Minister Hirohisa Fujii said it was wrong to see his comments as a license to push the currency higher.

Fujii was also quoted by Jiji news as saying currency intervention was possible under extreme circumstances.

The impact of a stronger yen on earnings of exporter companies is a concern for market players as a stronger Japanese currency eats into exporters' profits when they are repatriated.

Electronics parts maker Kyocera Corp advanced 2.4 percent to 8,270 yen and industrial robot maker Fanuc Ltd gained 2.8 percent to 7,990 yen.

Honda Motor Co added 2.1 percent to 2,730 yen.

Among other notable stocks, nonferrous metal manufacturer Dowa Holdings Co Ltd climbed 5.5 percent to 556 yen after Mitsubishi UFJ Securities initiated coverage of the company's shares with a six to 12-month target price of 690 yen.

"We think the company's business strategy -- which aims to transform Dowa from a conventional nonferrous metals company into a recycling-oriented company -- gives it substantial potential for longer-term growth," Mitsubishi UFJ Securities analyst Akihiro Omura said in a research note issued the previous day.