* Financials, exporters lead gains
* Japan econmin says people don't think Japan has escaped deflation risk
By Ayai Tomisawa
TOKYO, July 12 (Reuters) - Japan's Nikkei on Tuesday surged more than 3 percent to almost recover its pre-Brexit level as investors took heart from hopes for a large stimulus package the government is expected to launch.
Buying in financials and exporters pushed up the Nikkei share average by 3.5 percent to 16,237.62 in midmorning trade, the highest level since June 24, before the market was rattled by Britain's decision to leave the European Union.
Helped by hopes for more stimulus packages around the world, investors are covering short positions taken in the past two weeks, although they continue to worry about the fallout from Brexit and global economic slowdown in the long term, traders say.
Prime Minister Shinzo Abe on Monday ordered a new round of fiscal stimulus spending expected to reach 10 trillion yen after he won a crushing election victory at the weekend.
On Tuesday, Economy Minister Nobuteru Ishihara said that people still do not think Japan has fully escaped the risk of deflation, and that stimulus spending must ensure that Japan maintains enough speed to escape deflation.
"Investors are cautiously taking risks now although they are aware of uncertainty," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.
He added that investors think it will take time to assess Brexit's repercussions for the global economy, and the corporate sector may wait longer to restart investing given the uncertainty of the global outlook.
All Topix's 33 subsectors were rising, with financials leading gains. Nomura Holdings surged 6.5 percent and Daiwa Securities jumped 8.1 percent. Mitsubishi UFJ Financial Group jumped 7.6 percent and Mizuho Financial Group rose 6.2 percent.
Exporters also gained after the dollar rose to as high as 102.895 yen on Monday, the highest since July 1. The dollar surged nearly 2.2 percent on Monday for its biggest one-day rise against the yen since October 2014. At 01:50 GMT, the dollar stood at 103.24 yen.
Toyota Motor Corp soared 4.1 percent, Honda Motor Co gained 4.4 percent and Panasonic Corp jumped 5.5 percent.
The broader Topix gained 3.2 percent to 1,295.40 and the JPX-Nikkei Index 400 advanced 3.2 percent to 11,662.48. (Reporting by Ayai Tomisawa; Editing by Eric Meijer)