* Market continues to stay cautious on U.S. data - traders

* Insurers, exporters gain ground

By Ayai Tomisawa

TOKYO, Aug 29 (Reuters) - Japanese stocks surged to 1-1/2-week highs on Monday morning as the yen weakened after U.S. Federal Reserve Chair Janet Yellen signalled an interest rate hike remains on the cards this year, lifting insurers and exporters.

Speaking at the annual gathering of central bankers in Jackson Hole, Wyoming, Yellen said the case for raising U.S. interest rates had strengthened thanks to improvements in the labour market and expectations for moderate economic growth.

The Nikkei share average soared 2.2 percent to 16,721.23 in midmorning trade, after rising as high as 16,737.95, the highest since August 17.

Insurers staged a rally as higher U.S. rates would allow them to reap yield gains from their investments in U.S. bonds, while their domestic stock portfolio would also benefit from Nikkei's uptick.

Dai-ichi Life Insurance jumped 6.3 percent, Sompo Japan Nipponkoa Holdings rose 5.1 percent and Japan Post Insurance advanced 2.2 percent.

Exporters also surged after the dollar rose 0.2 percent to 102.03 yen after earlier rising as high as 102.14, its best since Aug. 12.

Toyota Motor Corp jumped 4.0 percent, Honda Motor Co soared 3.5 percent and Nissan Motor Co gained 2.7 percent.

While Yellen did not indicate when the Fed might raise rates, her hawkish comments have got markets focused on higher U.S. rates before year-end, traders said.

In the longer run, however, investors remain on U.S. data-watch mode to see if they cement Yellen's view, the traders added.

"Sentiment has recovered and it's helping the market rebound, but it's too early to turn optimistic," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

"It's not too difficult for the Nikkei to trade above the current 16,500 level. What the market wants to see is whether the U.S. economy is strong enough to stimulate investor appetite and the Nikkei to stay above the 17,000 level."

The broader Topix gained 2.1 percent to 1,314.38 and the JPX-Nikkei Index 400 rose 2.2 percent to 11,823.22.

(Editing by Shri Navaratnam)