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TOKYO, July 3 (Reuters) The Nikkei extended gains to rise 0.48 percent on Monday as the Bank of Japan's tankan survey confirmed the Japan's solid economic recovery, spurring buying in Mizuho Financial Group Inc. and other domestic stocks.

Nissan Motor Co Ltd inched up, reacting little to news that billionaire investor Kirk Kerkorian urged General Motors to consider a three-way partnership with Nissan and Renault SA, while Japan Airlines Corp. took a hit on a massive equity financing plan.

The tankan's headline diffusion index (DI) for big manufacturers' sentiment was plus 21, compared with a reading of plus 20 in March and the market's median forecast of 22.

''Some might say the market could have risen more ... but considering the poor performance on Wall Street on Friday, the Japanese stock market is holding up strongly,'' said Hiroyuki Fukunaga, chief strategist, research division at Rakuten Securities.

The Nikkei rose 74.54 points to 15,579.72 as of 0424 GMT. It gained 2.54 percent on Friday to hit its highest close since June 5. The TOPIX index was up 0.53 percent at 1,595.35.

Nissan Motor added a 0.2 percent gain to 1,252 yen even after news of a possible tie-up with cash-strapped General Motors Corp.

Nissan said on Monday its board would meet soon to discuss the proposal to consider adding General Motors to its alliance with Renault.

Other auto stocks were mixed to firm with Toyota Motor Corp down 0.2 percent at 5,980 yen and Honda Motor Co rising 1.4 percent to 3,680 yen.

Bank shares gained following the tankan survey. Mizuho rose 2 percent to 988,000 yen and Mitsubishi UFJ Financial Group Inc.

climbed 1.3 percent to 1.62 million yen.

Shares in Japan Airlines, Japan's biggest airline company by revenue, sank 4.9 percent to 273 yen after the company said on Friday it would raise up to $1.94 billion by issuing new shares equivalent to 38 percent of its outstanding stock.

Rival All Nippon Airways Co. Ltd. was up 1.6 percent at 447 yen.

Goldman Sachs ratings moved some stocks with Pioneer Corp dropping to 3.5 percent to 1,782 yen after being added to Goldman's sell list.

Sumitomo Realty&Development Co. Ltd., on the other hand, gained 2.8 percent to 2,900 yen after being added to Goldman's conviction buy list.

UP OR DOWN? Following the tankan survey, which also showed improving sentiment among large manufacturers with the September index at plus 22, many market participants expect the BOJ to lift its short-term interest rates, which are now at near zero.

Tatsuyuki Kawasaki, director of equities trading division at Kaneyama Securities, said the market may dip temporarily if the BOJ raises rates but should remain firm as a rate hike means that the Japanese economy is on track to a recovery.

Still, Akio Yoshino, general manager at Societe Generale Asset Management, said an imminent rise in rates could hurt fragile demand at home and undermine outlooks of corporate earnings given that external demand looks unstable.

''Given narrow investor confidence over companies' topline sales figures, the market could receive an additional blow from a rise in interest rates,'' he said.

REUTERS CS DS1141