* Nikkei nears 32-month high, Topix rises 2.0 pct * More upside expected in coming months - analyst By Ayai Tomisawa TOKYO, Jan 25 (Reuters) - Japan's Nikkei share average rose on Friday as a sharp drop in the yen offered a boost to exporters, while financials attracted buying on the back of bright investor sentiment. The Nikkei gained 2.2 percent to 10,849.15, to sit just 0.9 percent below its 32-month high of 10,952.31 marked on Jan. 15. The yen tumbled to 90.695 yen to the dollar early on Friday, its lowest since June 2010, and dropped to 121.32 against the euro, its lowest level since April 2011, after comments by an official that the government has no problem with the dollar hitting 100 yen. "Right now, trading cues are basically these two -- currency moves and quarterly earnings," said Hiroichi Nishi, assistant general manager of equity research at SMBC Nikko Securities. Analysts said investors are chasing the market higher, as the underlying mood stays bullish on expectations that company earnings will exceed forecasts based on conservative foreign exchange assumptions. Exporters led gains, with Panasonic Corp rising 2.6 percent, Toshiba Corp adding 4.5 percent and Nissan Motor Co gaining 3.2 percent. Toyota Motor Corp rose 2.4 percent after it and BMW AG said they will jointly research a lithium-air battery expected to be more powerful than the lithium-ion batteries used in many hybrid and electric vehicles. The strengthening of the partnership between Toyota and BMW will allow them to cut development costs as competition intensifies globally. Financials rose, with Nomura Holdings Inc gaining 1.0 percent and Mitsubishi UFJ Financial Group adding 1.3 percent as investors sought for high beta stocks on positive sentiment. MORE UPSIDE The Nikkei has gained about 25 percent since mid-November on expectations that new prime minister, Shinzo Abe, will force the central bank to ease monetary policy to beat deflation. The market's gain stalled earlier this week after the Bank of Japan said its open-ended commitment to buy assets would kick in only next year, disappointing investors who had expected far more aggressive easing measures. But analysts said that there is further upside to the market, which will likely take cues from such events as the upcoming appointment of the new Bank of Japan governor after the current BOJ Governor Masaaki Shirakawa's term ends in April. Investors are also looking for strong earnings forecasts for the fiscal year ending March 2014 when companies start releasing full-year earnings in late April-May. The yen's steep decline has burnished the outlook for Japanese stocks, prompting analysts to raise profit forecasts for currency-sensitive exporters and foreign investors to plough $17 billion into the market, the biggest monthly inflow since 2010. "We can look forward to more good news from both the domestic market and the global market for the coming months," said Nobuhiko Kuramochi, a strategist at Mizuho Securities. He said the Nikkei was likely to reach 11,150 if the yen trades below 90 yen to the dollar for a while, based on a calculation by Mizuho. "Speaking from a currency-stock correlation point of view, our research showed that the Nikkei's level was around 10,041 when the yen traded around 85 yen to the dollar," Kuramochi said. He added that signs of a U.S. economic recovery will also likely serve as a tailwind to the Japanese market. U.S. factory activity grew the most in nearly two years in January and new claims for jobless benefits dropped to a five-year low last week, giving surprisingly strong signals on the economy's pulse. The broader Topix added 2.0 percent to 915.57.