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TOKYO (Reuters) - Japan's Nikkei will rise 51 percent in 2013 on expectations of higher company earnings, driven by a weaker yen after Prime Minister Shinzo Abe embarked on radical fiscal and monetary expansionary policies to spur growth, a Reuters poll showed,
A gradual economic recovery in the United States, Japan's biggest export market, will also help reignite buying in Japanese stocks after a bout of selling in recent weeks pushed the benchmark index briefly into bear market territory.
The Nikkei .N225 is expected to rise to 15,700 points by the end of 2013, which would mark its biggest annual percentage rise since 1972, according to the median forecast of 18 analysts polled by Reuters in the past week.
That compared with Monday's close of 13,033.12.
The previous poll in March had predicted that the index would reach 14,000 by end-2013.
"Abenomics' first arrow, or monetary easing, has been successful as it has fixed the excessively strong yen, and as a result it will lift company profits," said Masayuki Kubota, senior fund manager at Daiwa SBI Investments.
Abe's push to reflate the world's third-largest economy, dubbed "Abenomics", has revived foreign investors' interest in Japanese markets.
But the Nikkei suffered a sharp correction in recent weeks, with the index falling to as low as 12,415.85 last week, a level not seen before the Bank of Japan announced sweeping monetary easing in early April as investors worried the U.S. Federal Reserve would soon begin to taper back its massive stimulus program.
The index was also looking overbought on a technical basis, after rallying more than 80 percent from mid-November to a 5-1/2 peak on May 23.
Kubota added that Abe's so-called "third policy arrow", which includes participation in the Trans-Pacific Economic Partnership trade talks, will serve as a long-term growth strategy.
"The third arrow is overlooked as it has no immediate impact. But expanding exports means a lot to the economy, and it should have a positive impact in the long term," he said.
Market observers said investors would continue buying into exporters such as autos and machinery companies, whose earnings are expected to rise this fiscal year ending March, helped by a weaker yen, which boosts companies' competitiveness overseas and their earnings when repatriated.
"Most companies base their earnings on the assumption that the dollar will trade between 90-95 yen. We based our assumption at 100 yen to the dollar, but even at 95 yen, a lot of them can still post record profits," said Hiromichi Tamura, chief strategist at Nomura Securities, who expects the Nikkei to hit 18,000 by the end of the year.
By mid-2014, the Nikkei is expected to rise only slightly more to 16,000, according to the poll.
Risks include a steep rise in the long-term interest rate, which could spur fears about higher mortgage loan interest rates, possibly hurting real estate and bank shares and dampening sentiment.
Analysts noted that next year's planned consumption tax hike could also be a risk, which could hurt consumer spending.
"An adverse effect from the weaker yen will likely surface in the fall or the winter," said Makoto Kikuchi, the chief executive of Myojo Asset Management, adding that rising material prices could hurt companies' bottom-lines, while higher consumer prices could impact family finances.
Editing by Kim Coghill