Japan's Nikkei hits 2-month high after in-line US inflation data

TOKYO, Dec 12 (Reuters) - Japan's Nikkei share average hit a two-month high on Thursday, tracking Wall Street's strength, as an in-line U.S. inflation report boosted expectations of a Federal Reserve interest rate cut this month.

The Nikkei crossed 40,000 for the first time since Oct. 15, rising to as high as 40,0091.51, before ending the morning session 1.29% higher at 39,881.1.

The broader Topix climbed 1.03% to 2,777.55.

"U.S. inflation data convinced the market that the Fed will cut rates at its meeting next week," said Yugo Tsuboi chief strategist at Daiwa Securities.

A Labor Department report showed U.S. consumer prices in November increased by the most in seven months, though broadly in line with market expectations.

Wall Street's benchmark S&P 500 index advanced overnight and a rally in tech stocks, following the inflation data, lifted the Nasdaq above the 20,000-point milestone for the first time.

The Bank of Japan (BOJ) will announce its policy decision next week and the market has priced in a rate hike by January, said Tsuboi.

"Whether the BOJ raises rates this month or next month, the market is unlikely to make a drastic move like in August."

Chip-related stocks gained, with Advantest (ADTTF) jumping 4.2% to become the biggest boost for the Nikkei. Tokyo Electron (TOELF) added 0.7%.

Uniqlo owner Fast Retailing (FRCOF) rose 1.46%. ($1 = 152.2200 yen) (Reporting by Junko Fujita; Editing by Sumana Nandy)