* Short-covering by hedge funds lifts market - analysts
* Volume thin as many domestic investors on holiday
* Watami dives after reporting a widening loss
By Ayai Tomisawa
TOKYO, Aug 14 (Reuters) - Japan’s Nikkei on Tuesday rebounded from a five-week low, posting its biggest one-day gain since March as export-driven firms benefited from a pause in the safe-haven yen’s strengthening while the battered Turkish lira firmed.
The Nikkei share average surged 2.3 percent to 22,356.08, the biggest percentage gain since March 27. On Monday, it touched 21,851.32, the lowest level since July 11.
The broader Topix rose 1.6 percent to 1,710.95, with all of its 33 subsectors in positive territory.
But with many domestic investors away for religious holidays in Japan this week, activity was thin. Only 1.2 billion shares changed hands on the main board.
A strong yen reduces Japanese manufacturers’ profits made abroad when repatriated, and the respite on the currency front allowed recent losers such as electric machinery shares to rise on short-covering.
Index-heavyweight stocks SoftBank and Fast Retailing soared by 3.7 percent and 4.0 percent, respectively.
“Today’s activity was mostly short-covering by hedge funds,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
“The Japanese market posted a sharp decline the day before, but people woke up to find out that U.S. and European stock markets did not see much selling compared to Japan.”
The dollar was up 0.2 percent at 110.92 yen.
Tokyo Electron rose 2.2 percent, TDK Corp 3.0 percent and KDDI Corp by 3.0 percent.
Restaurant operator Watami Co nose-dived 10 percent after it posted an operating loss of 223 million yen for the April-June period, compared to an operating loss of 112 million yen a year earlier. (Editing by Richard Borsuk)