Taiwan stocks close higher as UMC up, currency down

* UMC climbs on possibility of setting up wafer fabs in China

* Touchscreen makers up on growth expectations

* Taiwan dollar slips after U.S. jobs data

* Markets open to compensate for Dragon Boat Festival break (Updates stocks to close)

TAIPEI, June 6 - Taiwan stocks closed higher in thin trade on Saturday, led by contract chipmaker UMC after Taiwan's president said it is considering allowing its companies to set up advanced wafer fabs in China.

But he Taiwan dollar weakened in midday trade, as the greenback strengthened globally after better-than-expected jobless data out of the United States reaffirmed investor confidence in the world's largest economy.

Taiwan's stock and forex markets were open on Saturday to compensate for an extra holiday last week for the Dragon Boat Festival.

The main TAIEX share index closed up 1.32 percent, or 89.64 points, at 6,856.74, further extending a rally that has seen it gain some 47 percent so far this year.

UMC, the world's second-largest contract chipmaker, closed the session up 5.73 percent at a one-month closing high, as investors bet that Taiwan would soon allow chipmakers to set up some wafer fabs on the mainland.

"UMC could be a major beneficiary from the possibility of being allowed to set up factories in China, which could drive down costs for the company and increase its competitiveness," said Alan Tseng, vice-president at Capital Securities.

Volume on the exchange was a paltry T$94.34 billion ($2.89 billion), barely half of most trading days, as many investors stayed away over the weekend.

Other top gainers included touchscreen makers Young Fast, which rose about 7 percent, and Elan Microelectronics, which closed about 4 percent higher, amid the increasing popularity of the technology.

However, fund managers and analysts warned the share prices of these companies have climbed significantly in recent months, and much of their earnings potential had already been priced in.

"There could be some pressure on these companies in the coming weeks," said John Chiu, vice-president at Fuh Hwa Securities. "There's plenty of excitement about touchscreens, but I'm afraid it might have gotten ahead of itself."

Recently-listed Young Fast has more than doubled, while Elan has nearly tripled since the beginning of the year.

The Taiwan dollar fell to a low of T$32.807 at its open, but pared some of those losses to trade at T$32.672 before breaking for lunch, weaker than Friday's close of T$32.607.

Volume on the main Taipei Forex Inc exchange was also thin, clocking in at $204 million at 0400 GMT, less than half that of the $419 million recorded during the same time in the previous session.

"Many investors are watching because there're no clear leads as to where the Taiwan dollar will go, so we're largely taking the U.S. dollar's performance last night as a gauge," said a dealer in Taipei.

On the smaller Cosmos exchange, the Taiwan dollar was trading for T$32.663, compared to Friday's close of T$32.593. --------------------TAIEX IN PERSPECTIVE--------------------

Move on day 1.32 percent

Close on day 6,856.74

2009 intraday high 7,084.83

2009 intraday low 4,164.19

All time high 12,682.41 12 FEB 1990 ------------------------------------------------------------