Japan's Nikkei average rose 0.2 percent on Wednesday, buoyed by blue-chip stocks such as Canon Inc and carmakers after brokerage upgrades, while upbeat results from big U.S. retailers helped investor confidence.

Sanyo Electric Co soared as much as 17 percent to a near two-month high, after a source familiar with the matter said Toyota would buy batteries for hybrid cars from Sanyo to keep pace with growing demand for cleaner vehicles.

Investors are picking up individual stocks with specific news, but their basic stance is still index-trading mainly in stock futures, said Yutaka Miura, senior technical analyst at Mizuho Securities.

Investors buy on dips but they don't want to aggressively keep buying due to concerns that economic indicators won't be all positive going forward as data so far has been mixed.

The benchmark Nikkei had added 20.50 points to 10,305.46 by midmorning, while the broader Topix rose 0.2 percent to 951.82.

The S&P 500 Index rose 1 percent on Tuesday, boosted by better-than-expected results from Home Depot Inc and Target Corp, which were largely due to cost-cutting and tight control over inventory, offsetting an unexpected drop in housing starts.

U.S. government data showed construction starts for single-family dwellings, the worst-hit part of the housing market, rose 1.7 percent last month from June to an annual rate of 490,000 units -- the highest since October.

But a 13.3 percent drop in new multifamily home projects pushed overall housing starts down 1 percent to an annual rate of 581,000 units after two months of gains.

Canon climbed 3.3 percent to 3,470 yen after Goldman Sachs upgraded the company to buy from neutral and added it to its conviction list, citing expectations for a strong rebound in laser beam printer shipments and resilient demand for digital cameras.

Toyota and other automakers gained after Nomura Securities raised its investment stance on the sector to bullish from neutral.

Nomura cited improvement in company performance in the first quarter, hopes for recovery in demand due to government support measures, and a growing possibility that companies may raise their forecasts.

Toyota rose 1.7 percent to 4,110 yen, Honda Motor Co gained 2 percent to 3,070 yen and Mazda Motor Co jumped 3.9 percent to 267 yen. Nissan Motor advanced 2 percent to 715 yen.

The transport subindex gained 1.6 percent to become the biggest gainer among the subindexes.

Sanyo shares were up 14.7 percent at 257 yen, after hitting their highest since June 29.

(Reporting by Aiko Hayashi; Editing by Chris Gallagher)