* News GPIF raising stock allocation to 25 pct underpins sentiment * Resignation of two cabinet members a big blow to Abe - analyst By Ayai Tomisawa TOKYO, Oct 20 (Reuters) - Japan's Nikkei share average surged 4.0 percent on Monday to post its biggest daily rise since June 2013 as investors took heart from upbeat U.S. data and the weaker yen lifted exporters such as Toyota Motor Corp and Honda Motor Co.

Also underpinning the market was news that Japan's $1.2 trillion public pension fund will likely raise its allocation to domestic stocks to about 25 percent from 12 percent at present.

People familiar with the process told Reuters that a weighting in the middle of the 20-30 percent range is the main proposal for an impending reallocation of the fund's asset mix and is under final discussion within GPIF.

The Nikkei share average added 578.72 points to end at 15,111.23, recouping most of the losses posted last week.

Upbeat U.S. consumer confidence supported investor sentiment and lifted risk appetites. The Thomson Reuters/University of Michigan index of consumer sentiment unexpectedly rose in early October to its highest level since July 2007. Separate data showed groundbreaking on new homes rose more than expected last month.

Traders said investors scooped up recently-battered stocks after the Nikkei tumbled 5 percent last week on concerns about faltering global growth and the stronger yen.

"Selling seemed to have reached its climax last week, so people bargain-hunted shares after gains overseas calmed our nerves," a fund manager at a Japanese asset management firm said.

But some analysts remained cautious, and said any rebound may be short-lived.

"With Halloween just around the corner, the market was spooked by 'ghosts' and these ghosts will probably stick around longer," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center, citing persistent concerns about the sputtering European economy, worries about what could happen after the U.S. Federal Reserve ends its bond-buying campaign, and the effects of the Ebola epidemic.

Toyota jumped 5.2 percent, Honda soared 3.5 percent and Panasonic Corp surged 4.5 percent after the dollar rose 0.4 percent at 107.345 yen, moving further from a five-week low of 105.90 hit the previous week.

NEC Corp rose 6.5 percent after the Nikkei business daily reported its operating profit for the April-September period was likely to be about 20 billion yen, compared to just shy of 400 million yen in the previous year.

POLITICAL WOES IN BACKGROUND While shares in the Japanese market soared mostly on external factors on Monday, a domestic political scandal could have a negative impact in the mid-to-long term, analysts said.