By Junko Fujita

TOKYO (Reuters) - Japan's land prices fell the least since the global financial crisis in the year to July 1, while commercial land in the three biggest cities rose in value for the first time in the same period, the latest signs that deflation is easing its stubborn grip on the country.

Land prices nationwide fell 1.9 percent, narrowing from the previous year's 2.7 percent decline and the smallest drop since 2008, a government survey showed on Thursday.

This brings Japan closer to ending 22 years of falling land prices - a legacy of the country's massive 1980s asset bubble.

The gradual narrowing of land-price declines is good news for Prime Minister Shinzo Abe, whose top priority is ending Japan's long battle with deflation and spurring sustained growth with an expansionary policy mix of monetary, fiscal and structural reform measures.

"Japan's overall land prices may turn positive as early as early next year," said Takashi Ishizawa, chief real estate analyst at Mizuho Securities Co.

"But that increase will be led by large cities whose populations are increasing. There will be widening gaps between big cities and smaller cities. Land prices in cities with falling and aging populations will most likely keep falling."

The latest land ministry data already show how uneven the real-estate improvement has been, with rises limited to the best properties in the choicest areas.

Commercial land prices in the greater Tokyo, Osaka and Nagoya areas ticked up 0.6 percent, and residential land in Nagoya - home of Toyota Motor Corp - rose 0.7 percent, the first such increases since prices tumbled in the wake of Lehman Brothers' collapse.

Overall land prices in cities surrounding the three largest cities also edged up by 0.1 percent.

Even as real estate in most of Japan remains depressed, a boom in investment in the hottest properties, driven by a search for yield and hopes for "Abenomics," has recently shown signs of a mini-bubble.

Foreign investors have poured into upper-end Tokyo properties and recently extended their purchases to major regional cities.

Last month, a group including former U.S. insurance magnate Maurice "Hank" Greenberg and an Abu Dhabi sovereign fund agreed to buy a 31-year old office building in Tokyo for about $1 billion.

A building in Tokyo's posh Ginza district housing the flagship store of jewelers Tiffany & Co (TIF), is up for sale as owner Asia Pacific Land bets on a recovery in a property prices.

Gains in shares of public real estate trusts (JREITs) have helped them to raise money from the stock market, enabling them to fund property purchases more easily, which has also helped boost land values, Ishizawa said.