* Nikkei, Topix up 2.9 pct * Exporters gain on better earnings expectations - analyst * Market deeper into 'overbought' territory By Ayai Tomisawa TOKYO, Jan 4 (Reuters) - Japan's Nikkei share average rose to a 22-month high on its first trading day of 2013 as a deal in Washington to avert the "fiscal cliff" buoyed investors' risk appetites and a weaker yen lifted exporters. The Nikkei added 2.9 percent to 10,697.56, the highest intraday level since March 2011. If the index touches the 10,800-mark, it will be the first time since Feb. 21, 2011. Exporters were in demand, with Toyota Motor Corp adding 4.2 percent to 4,175 yen, Honda Motor Co advancing 4.5 percent to 3,285 yen and Canon Inc gaining 2.8 percent to 3,435 yen. "It's a relief that the U.S. fiscal cliff was averted," said Hiroichi Nishi, general manager at SMBC Nikko Securities, adding that the market is cheering positive developments that happened while Japanese markets were closed for the New Year holidays. "Exporters should benefit from a weaker yen on expectations that they will have strong forecasts for the next fiscal year." On Wednesday, President Barack Obama signed "fiscal cliff" legislation that raises tax rates for top earners and extends tax cuts for the middle class. The yen traded at 87.78 yen to the dollar on Friday morning, its weakest since July 2010. A weaker yen inflates exporters' overseas earnings when repatriated. OVERBOUGHT SIGNALS Japanese shares gained 23 percent last year, their best yearly gain since 2005, after rising expectations of aggressive monetary stimulus under new Prime Minister Shinzo Abe weakened the yen and bolstered exporters. Analysts said that the Nikkei will probably hold strength for the time being, but they also warned that with some technical charts signalling overbought levels, profit-taking could hit anytime. "Investors' risk appetites have come back. Investors are chasing the market higher for the sake of chasing the market higher," said Yoshiyuki Kondo, a strategist at Daiwa Securities. "It's like the chicken game. They are thinking about the risk of losing if they don't keep buying, but you don't know what could trigger a pullback." The Nikkei has risen about 24 percent since mid-November when Abe started calling for aggressive easing, taking the Nikkei deeper into "overbought" territory. Its 14-day relative strength index is at 83.29, far above 70 which is considered overbought and often indicates an imminent adjustment. The index is also trading nearly 10 percent above its 25-day moving average of 9765.07. Analysts said investors are keeping an eye on the U.S. non-farm payrolls report due out later Friday. The data is expected to show the economy added 150,000 jobs in December, according to a Reuters survey of economists, up from November's 146,000. "Right now, market players are expecting a positive outcome, but if it disappoints the market, we may see a big drop," Daiwa's Kondo said. "The market is so overheated that it could slide, even temporarily, and anything could be a trigger." The broader Topix gained 2.9 percent to 884.61.