* 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 3.8 percent on Monday afternoon and was on track for its biggest daily rise in more than a year as investors took heart from upbeat U.S. data and as 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 the coming reallocation and is under final discussion within GPIF.

The Nikkei share average rose 551.64 points to 15,087.30 in early afternoon trade, recovering most of last week's losses.

Upbeat U.S. consumer sentiment gave relief to 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 for new homes rose more than expected last month.

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

"Selling in some of the stocks was overdone. Investors are buying them on the dips," a trader at a Japanese brokerage 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 ends tapering and the Ebola epidemic.

Toyota jumped 5.4 percent, Honda soared 3.8 percent and Panasonic Corp surged 4.7 percent after the dollar rose 0.2 percent at 107.18 yen, moving further from a five-week low of 105.90 hit the previous week.

NEC Corp rose 5.3 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 the external factors on Monday, a domestic political scandal could have a negative impact in the mid-to-long term, analysts said.