TOKYO, Jan 18 The Nikkei average rose 0.81 percent on Thursday after earlier hitting its

TOKYO, Jan 18 (Reuters) The Nikkei average rose 0.81 percent on Thursday after earlier hitting its highest in nine months after the Bank of Japan kept its key policy rate unchanged at 0.25 percent as expected.

''As the market has been factoring in a lack of change in the BOJ policy, its reaction to the news was calm,'' said Takahiko Murai, general manager of equities at Nozomi Securities.

Some market participants locked in profits after the BOJ decision but others shrugged off the news and were turning their attention to quarterly corporate earnings reports, he said.

The benchmark Nikkei average was up 139.13 points at 17,400.48 at 0448 GMT, after earlier hitting its highest since April at 17,408.62.

The broader TOPIX index rose 0.72 percent to 1,719.03, after earlier setting its highest since last May.

The BOJ voted by 6-3 in favour of keeping policy unchanged.

The BOJ has been in a quandary. The economy has been showing an extended recovery but worries remain given soft price pressures and moderate growth in consumption. One senior member of the ruling party said this week that the government should formally request a delay in a policy vote.

Drug stocks advanced on consolidation hopes after Tanabe Seiyaku Co. Ltd. said it was considering a merger with a rival.

Tanabe Seiyaku rose 4.7 percent to 1,704 yen after the company said it was in merger talks with Mitsubishi Pharma Corp., the drug unit of Mitsubishi Chemical Holdings Corp.

The Nikkei newspaper reported earlier that Mitsubishi Chemical would take a stake of more than 50 percent in the new firm, which would become Japan's sixth-biggest drug maker.

Shares in Mitsubishi Chemical climbed 5.2 percent to 812 yen.

Expectations of a further shakeup in the industry helped other drug shares, with Eisai Co. Ltd. up 4.2 percent at 6,650 yen and Ono Pharmaceuticals Co. gaining 3.7 percent to 6,180 yen.

Shares in Fast Retailing Co. rose 0.6 percent to 9,650 yen after a newspaper reported on Thursday that the operator of the Uniqlo clothing chain would consider a 400 billion yen ($3.3 billion) acquisition.

Fast Retailing said in September 2005 that it planned to spend 300-400 billion yen on acquisitions in three years, aiming to nearly double its group sales to 1 trillion yen in 2009/10 from a projected 532.5 billion yen in the year to August 2007.

Shares in Rakuten Inc. jumped 8.7 percent to 62,600 yen after a newspaper reported on Thursday that Tokyo Broadcasting System Inc. may launch a tender offer to buy Rakuten's 19 percent stake in the TV broadcaster.

The Nikkei Financial Daily reported earlier that Rakuten, Japan's biggest online shopping mall, would gain a special profit of over 30 billion yen if TBS bought back its shares from Rakuten through a tender offer.

But investors sold technology stocks, tracking a drop in similar U.S. stocks after disappointing financial results from Intel Corp.

REUTERS CS GC1144