(Updates to midmorning)

TOKYO, Nov 4 (Reuters) - The Nikkei average gained 3.7 percent on Tuesday after a sell-off the previous trading day as exporters gained on a softer yen, while electronics maker Panasonic (6752.T: Quote, Profile, Research) jumped after reports it would take over Sanyo Electric (6764.T: Quote, Profile, Research).

Japanese markets were closed for a public holiday on Monday, while U.S. stocks ended little changed as investors were unwilling to place big bets before the presidential election. [.N]

"The market is simply recouping losses it booked on Friday as Nikkei futures ended higher, even though the U.S. market took a wait-and-see stance before the presidential election," said Fumiyuki Nakanishi, manager at SMBC Friend Securities.

"The reports about Panasonic are also positive to the overall market as they indicate industry realignment could happen across the board and across borders because stocks are so cheap now."

Company and financial sources said on Saturday that Panasonic is in talks with Goldman Sachs (GS.N: Quote, Profile, Research) and two other major shareholders of Sanyo to buy a controlling stake in its smaller rival. But Panasonic has said nothing has been decided about the potential takeover of Sanyo. [ID:nT270403] [ID:nT316008]

As of 0051 GMT, the benchmark Nikkei .N225 had added 320.89 points to 8,897.87, after ending Friday down 5 percent.

It ended the month of October down 24 percent, its biggest monthly fall in its 58-year history, but had gained 12.1 percent last week.

The broader Topix .TOPX climbed 3.5 percent to 897.34.