(Reuters) - Japan's Nikkei average hit its highest level in nearly three months Tuesday on hopes that a Greek debt deal will still be reached even after European finance ministers rejected an offer by Greece's private creditors.

Struggling Elpida Memory Inc (6665.T) jumped 4 percent in early trade with a report that it is in the final stage of merger talks with U.S. rival Micron Technology (MU.O) and Taiwan's Nanya Technology (2409.TW).

Elpida, Japan's last remaining player in the dynamic random-access memory (DRAM) market and which must grapple with tumbling prices and stiff competition from Asian rivals, declined to comment on the report.

The benchmark Nikkei <.N225> gained 0.5 percent to 8,810.54,

unscathed by news out of Europe that euro zone ministers took issue with the average coupon on new bonds offered by private Greek bondholders, effectively raising the stakes of the negotiations and heightening the risk of a chaotic default.

There is a sense that market players are expecting a smooth, relatively drama-free resolution to this Greek deal, and although U.S. markets are looking at this with some pessimism, it is not as though the (debt) talks are going to fall through, said Kenichi Hirano, chief operating officer of Tachibana Securities.

Hirano said that Tuesday's gains were a continuation of recent broad buying back of bluechips that has recently boosted trading volumes.

The Topix index .TOPX added 0.3 percent to 759.03.

Toyota Motor Corp (7203.T) jumped 2.9 percent to top the Topix core 30 list .TOPXC of bluechip firms. At one point it touched a high of 2,803 yen, its highest level in almost five months.

Rival automakers trailed Toyota as the second and third biggest percentage gainers on the core 30 list respectively, with Honda Motor Co (7267.T) up 2.3 percent, while Nissan Motor Co (7201.T) rose 2 percent.

Toyota topped the main board as the heaviest traded share by turnover after Kyodo News said on Monday that the carmaker had developed a way to make hybrid and electric vehicles without using expensive rare earth metals. Rare metals are mainly produced in China which has in the past curbed exports.

(Additional reporting by Dominic Lau; Editing by Edwina Gibbs)

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