* LDP victory seen as reducing political uncertainties * Nikkei up 2.6%, biggest gains in 4 months * Investors not sure about longer term policy outlook (Adds closing prices, comments, graphics) TOKYO, Nov 1 (Reuters) - Japanese stock prices hit a one-month high on Monday, buoyed by expectations of a stable government and more fiscal stimulus after Prime Minister Fumio Kishida’s ruling party held on to a majority in a parliamentary election. The Nikkei share average rose 2.61%, its biggest gain in more than four months, to 29,647, its highest level since late September. The broader Topix added 2.18% to reach a one-month high of 2,044.72. Kishida’s conservative Liberal Democratic Party (LDP) retained its majority in the powerful lower house in Sunday’s parliamentary election and is expected to roll out an extra budget to support pandemic-hit businesses. “The market was lifted by a positive surprise of the LDP’s solo majority win at the election. Investors are now more confident in a stable, long-term administration of the party,” said Kentaro Hayashi, senior strategist at Daiwa Securities. The election outcome removes a layer of political and policy uncertainty for investors who had worried Kishida could follow predecessor Yoshihide Suga as another short-term premier. Yet, the LDP’s absolute majority could bring attention back to Kishida’s “new capitalism” policies that could mean some softening of corporate governance changes of the past few years. One particular worry is a plan to hike the capital gains tax, which Kishida had proposed and then dialed back on, but not entirely abandoned. His promise to address wealth inequality has likewise stoked investor concern. “The election results will boost stock prices in the short term and, by enhancing the risk-on mood, it could be a tailwind for the dollar/yen,” said Osamu Takashima, chief currency strategist at Citigroup. “But the poll results endorsed his wealth distribution policies to a certain extent. For stock markets that expect reform and growth, they may be a bit underwhelming.” That disappointment was behind Japanese shares’ underperformance last month, when the Nikkei fell 2.2%, compared with 6.9% gains in the U.S. S&P500. Kishida said on Sunday he aimed to compile an extra budget by the end of the year for a stimulus package to support people hit by the pandemic, such as those who lost jobs and students struggling to pay tuitions. While that provided investors some short-term relief, analysts turned to doubts over what Kishida will deliver. “While we see the election results as positive for the stock market over the near-term, we will need to keep an eye on the political situation further out,” analysts at JP Morgan wrote. Foreign investors, in particular, have viewed the more reformist Taro Kono, his chief rival at the LDP’s leadership election in September, as more positive for stocks. Others were more optimistic. Takuji Aida, chief economist at Okasan Securities, says there are misunderstandings about Kishida’s policies. “There’s a misunderstanding that Kishida’s wealth-distribution policy is negative for stocks. It aims to rebuild households by fiscal spending, which should boost consumption and companies’ expected return on investment.” The U.S. dollar ticked up 0.1% to 114.15 yen, edging near a four-year high of 114.695 touched last month. Japanese bond markets barely reacted to the election result. Investors see limited increase in bond issuace to finance the upcoming stimulus as the government has a lot of unused cash from previous packages. The 10-year JGB yield ticked down 0.5 basis point to 0.090% . ($1 = 114.27 yen) Reporting by Tokyo Markets Team; Editing by Vidya Ranganathan and Richard Pullin