* Fanuc rises sharply, lends strong support to Nikkei * Tokyo Electron tumbles after M&A deal scrapped By Ayai Tomisawa TOKYO, April 28 (Reuters) - Japan's Nikkei share average rose on Tuesday morning on hopes of better shareholder returns after Fanuc Corp doubled its dividend payout ratio at its earnings release.

Industrial robot maker Fanuc jumped 6.6 percent to a record high after saying that it planned to pay around 60 percent of consolidated net income as dividend to shareholders, compared with its previous target of 30 percent.

The stock was the second most traded stock by turnover, and it contributed to a hefty 63 points to the Nikkei index.

The Nikkei 225 gained 0.7 percent to 20,116.90 in mid-morning trade.

Japanese stocks have risen 15 percent this year, driven by expectations of higher shareholder returns, hopes for economic recovery and expectations of stronger profits for this fiscal year.

"Heading into another peak earnings week, investors have focused on companies' efforts to raise shareholder returns," said Takuya Takahashi, a strategist at Daiwa Securities. "Earnings itself is important, but investors are strongly interested in what companies are doing to make shareholders happy." Bucking the strong market, Tokyo Electron Ltd plunged 15 percent to a six-month low and was the most traded stock by turnover after U.S. regulatory opposition forced the scrapping of its planned takeover by Applied Materials Inc .

Nomura Securities cut Tokyo Electron's rating to 'reduce' from 'neutral,' saying that the company's stock price had been rising on such expectations as its business would be streamlined after a merger with Applied Materials.

Komatsu Ltd tumbled 5.8 percent to a more than three-week low after the company said it expects an 8.7 percent fall in its operating profit to 221.0 billion yen for this fiscal year through March 2016. It was lower than 270.2 billion yen forecast by 25 analysts polled by Thomson Reuters StarMine.

Exporters were higher, with Toyota Motor Corp rising 1.6 percent and Honda Motor Co gaining 1.4 percent.

The broader Topix gained 0.6 percent to 1,627.91 and the JPX-Nikkei Index 400 also advanced 0.6 percent to 14,776.21.

(Editing by Jacqueline Wong)