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* Carmakers may see long rally - trader * U.S. optimism about fiscal deal lifts sentiment * Nikkei, Topix both rise 1.0 pct By Ayai Tomisawa TOKYO, Nov 29 (Reuters) - Japan's Nikkei share average rebounded from the previous session's one-week closing low as hints from U.S. policymakers of progress toward reaching a fiscal deal boosted investors' risk appetites. The Nikkei advanced 1.0 percent on Thursday to 9,400.88 points, climbing above its five-day moving average at 9,377.65. U.S. House of Representatives Speaker John Boehner voiced optimism on Wednesday that a deal could be reached to avoid a "fiscal cliff" of $600 billion in spending cuts and tax hikes starting in 2013. Failure to reach a deal could see the U.S. economy back in recession and drag down the global economy. Boehner's remarks lifted U.S. and European stocks overnight. Japan's exporters gained ground after a bout of profit-taking following a recent rally spurred by a weaker yen. The yen has been under pressure on expectations the opposition Liberal Democratic Party will win a Dec. 16 election and increase pressure on the central bank to adopt a bolder monetary policy. "The yen is back safely to the 82 handle (to the dollar). Yesterday was a bit of a consolidation day. People are happy to come in today and do a little bit of buying again," a senior dealer at foreign brokerage said. "We are going to be in a grace period until the election... Until then, people are prepared to buy into the idea that the yen is going to weaken further." Calls by LDP leader Shinzo Abe for the Bank of Japan to set an inflation target of 2 percent and embark on "unlimited easing" have weakened the yen sharply over the past two weeks, giving shares of long-suffering exporters a fillip. Analysts said that optimism over the weak yen may keep the index around the 9,400 mark until the December election, but a correction may be seen when it nears the psychologically important 9,500 level. CARMAKERS MAY STAY BEST PICK Exporters in demand on Thursday included Toyota Motor Corp , Honda Motor Co, Canon Inc and Hitachi Ltd, which rose between 1.1 and 2.9 percent. JFE Holdings climbed 3.5 percent after the Nikkei business daily said the steelmaker is expected to generate positive free cash flow of about 100 billion yen ($1.2 billion) this fiscal year, due to lower costs, smaller inventories and lower capital expenditures. Traders said although there may be profit-taking following steep rises in exporters, companies such as Toyota and Honda may rally until around March. "I started adding those carmakers to my portfolio in October after most exporters' earnings were out," said Yasuo Sakuma, chief executive of Bayview Asset Management. He said that while many Japanese manufacturers' earnings disappointed the market with cuts to their full-year outlooks, the bad news created a good time to buy. "I will keep buying companies like Toyota which have a competitive edge in the global market, but such rally's psychological 'expiration date' may come in about five months," Sakuma said. The broader Topix gained 1.0 percent to 779.44. GOLDMAN SACHS UPBEAT Goldman Sachs raised its 12-month Topix target by 8.1 percent to 930 from 860. The new target was nearly 20 percent above where the index ended Thursday's morning session. "Most investors have minimal exposure to Japanese equities, but if macro and micro fundamentals improve, we see scope for extreme underweight positions to be reassessed," Goldman Sachs strategists wrote in a note. "Assuming the current underweight 'gap' of EAFE (Europe, Asia and Far East)-benchmarked international equity funds is closed, this could imply roughly $60 billion of potential foreign purchases," they said. Foreign investors were net buyers of Japanese stocks last week for the second straight period after three weeks of net selling. They bought a net 275.6 billion yen of shares in the week through Nov. 24, data from the Ministry of Finance showed. The benchmark Nikkei has rallied 8.5 percent over the past two weeks, taking the month-to-date gain to 5.3 percent, on track for its best monthly performance since June. The Nikkei is up 11.2 percent so far this year, on par with a 12.1 percent rise in the U.S. S&P 500 and an 11.7 percent gain in the pan-European STOXX Europe 600. Still, Japanese equities are more expensive than their European counterparts, with a 12-month forward price-to-earnings of 12 versus STOXX Europe 600's 11, according to Thomson Reuters Datastream. The S&P 500 has a 12-month forward P/E of 12.5.