* Softer yen, Japan capex data support stocks
* Major exporters gain on weaker yen
* Softbank tops core 30 list, wins spectrum
* Kyocera rises after target price hikes
* Worries remain that market is overheated
By Mari Saito
TOKYO, March 1 (Reuters) - Japan's Nikkei average pared earlier gains, but held near 9,800 on Thursday, boosted by an unexpected jump in fourth-quarter capital expenditure by Japanese companies, while the softening yen and the European Central Bank's liquidity move underpinned sentiment.
In an encouraging sign of an uptick in demand, Japanese companies increased their capital spending by 7.6 percent in the October-December period, better than the median estimate for a 6.5 percent annual decline.
The benchmark Nikkei advanced 0.4 percent to 9,757.20 by the midday trading break. The index pared gains after earlier hitting an intraday high of 9,865.75 after the previous day's rally above the key 9,800 level also proved unsustainable and the benchmark ended flat.
The broader Topix index added 0.1 percent at 836.69.
"The capex data was much better than previous estimates and that, combined with the yen, which is softer today against the dollar, is prompting buying in all major sectors like financials, autos, machinery and real estate," said Masayuki Doshida, senior market analyst at Rakuten Securities.
The dollar was trading at 81.13 yen, moving back toward a nine-month high of 81.661 yen hit earlier this week.
Among export-oriented bluechips, Toyota Motor Corp gained 0.6 percent in heavy volume, while Sony Corp climbed 1.1 percent and Canon Inc advanced 1.4 percent.
Societe General wrote in a note to clients on Wednesday that the yen was near its best level and recommended clients buy a three-month call spread for the Nikkei between 9,750 and 10,750.
"If the rising yen was responsible for the underperformance of the Nikkei, the fall of the yen is upbeat. We propose a call spread to take exposure to the Nikkei," the bank wrote.
Softbank Corp was up 1.9 percent and topped the Topix Core 30 list as the biggest percentage gainer after it won coveted 900 Megahertz spectrum for high-speed mobile services as it races to strengthen its network.
A trader said Softbank offered good risk/return as its performance lagged the Topix Core 30 this year, but added that a potential issue was how the company would fund any capital expenditures.
Trading volume on the Nikkei was at 67.2 percent of its average daily 90-day volume.
As the benchmark approached 9,800 with an eye on the key 10,000 level, market participants expressed worries about overheating and potential catalysts for a correction.
"A lot of people were caught flat-footed in this rally and they're questioning their own uncertainty about the direction of the market because it doesn't gel with the bullish market," said a trader at a foreign brokerage.
The trader said although the market continues to rise, market participants were still cautious and many were anxious to sell-off now to lock in profits.
Technical indicators fanned such market worries, with the 14-day relative strength index at 82.9, deep in "overbought" territory.
Market players said the ECB's liquidity operation overnight, although helping to support bullish market sentiment, did not contribute to the Nikkei's gains.
A total of 800 banks grabbed 530 billion euros ($709 billion) at the ECB's offering of cheap three-year funds on Wednesday, slightly more than analysts had expected for the bank's second long-term refinancing operation.
Kyocera Corp climbed 1.7 percent to a six-month high of 7,310 yen after Morgan Stanley MUFG and J.P. Morgan raised their price targets following a meeting with the electronics firm's president, Tetsuo Kuba, on Feb 29.
J.P. Morgan raised its price target to 7,800 yen from 7,000 yen, while Morgan Stanley MUFG lifted its price target to 7,700 from 7,000, but kept its "equal weight" rating.
U.S. stocks slipped overnight after Federal Reserve chairman Ben Bernanke offered a tempered view of the U.S. economy and gave no hint of further easing moves, disappointing investors hoping for a signal of more stimulus.
($1 = 0.7476 euros) (Additional reporting by Dominic Lau; Editing by Matt Driskill)