(Reuters) - Japan's leading share average rose to a three-week closing high on Wednesday after better-than-expected economic data from the United States and China, although strategists said the rally could stall if the euro holds below 100 yen.

The data eased concerns over the health of the global economy, boosting Japanese automakers and financials.

Toyota Motor Corp (7203.T) advanced 3.1 percent and Nissan Motor Co (7201.T) gained 1 percent, while battered Nomura Holdings (8604.T) topped the blue-chip Topix Core 30 .TOPXC list as the biggest percentage gainer, adding 6.9 percent.

The benchmark Nikkei average .N225 gained 1.2 percent to 8,560.11, trading above its 25-day moving average of 8,495, after figures showed that U.S. manufacturing grew at its fastest pace in six months in December. The Nikkei lost 17.3 percent last year.

The 75-day moving average near 8,589 is seen as the next hurdle for the Nikkei to top before investors can become more confident of a broad rebound in Japanese stocks.

It looks like the Nikkei is capped at the 75-day average. Whether it can rise above this level will be in focus, said Yoshihiro Ito, chief strategist at Okasan Online Securities. The first four days of trading of the year is always ... a good gauge of investor sentiment in Japan.

Topix is very strong today and it looks like there is broad buying back by foreign investors, especially European funds after they sold off near the end of last year.

The broader Topix .TOPX climbed 2 percent to 742.99.

Continuing its recent volatile trading, Elpida Memory (6665.T) spiked more than 9 percent in heavy morning trade after a Taiwanese trade publication said the troubled chipmaker may merge with Toshiba Corp (6502.T). It ended up 5.6 percent.

Toshiba shed 1 percent even as the company denied the report.

TonenGeneral (5012.T) lost 5.8 percent as investors worried how it would fund a repurchase of most of Exxon Mobil's (XOM.N) 50 percent stake in the refiner, after sources told Reuters about the U.S. oil major's plan to retreat from Japan.

EURO IN FOCUS

Despite steady gains on Wednesday, market players said the weakened euro could derail Japan's rally, with the single currency hovering just below 100 yen on Wednesday after hitting an 11-year low of 98.71 yen in thin trading on Monday, when Tokyo markets were closed.

For now, there are no sharp forex moves, but market participants are focused on the euro/yen rate, and if it cuts below 100 yen or close to 99 yen the market's gains will shrink, said Kenichi Hirano, operating officer at Tachibana Securities.

Foreign exchange rates remain unstable for now and this will continue to pressure Japanese exporters.

Citing the yen strength's and expensive valuations, HSBC maintained its underweight on Japanese equities in its global allocation.

The Bank of Japan remains reluctant to inject liquidity; this means the yen is likely to strengthen further, which will likely hurt earnings, HSBC said in a note.

Japan is expensive relative to other markets and quite well owned by international investors compared to historical levels, it said and had a year-end target for the Topix at 680, which is 8.5 percent below Wednesday's close.

The Topix carries a similar valuation to the S&P 500 .SPX, Thomson Reuters Datastream data showed, despite losing 18 percent last year to underperform the U.S. gauge. The Japanese index has a 12-month forward price-to-earnings ratio of 11.6 versus S&P 500's 11.7 and STOXX Europe 600's 9.6.