Nikkei notches 21-year closing high; Kobe Steel sinks for 2nd day

* Nikkei hits 21-year closing high, Topix at decade-high

* Defensive lead gains, turnover lacklustre

* Kobe Steel plunges 20 pct to near 1-year low

By Hideyuki Sano and Ayai Tomisawa

TOKYO, Oct 11 (Reuters) - Japan's Nikkei share index closed at its highest in 21 years on Wednesday, with gains mainly led by defensive shares, though

exporters benefitted from solid global growth.

Japan's second biggest steelmaker Kobe Steel Ltd 5406.T sank 18 percent, following its 22-percent plunge the previous day, after the company's shock revelation on Sunday that it fabricated data on aluminium and copper products shipped to about 200 companies.

The Nikkei .N225 rose 0.3 percent to 20,881.27, its highest close since December 1996. The broader Topix .TOPX rose 0.1 percent to 1,696.81, its highest finish in a decade.

The Nikkei's advance mirrored other major stock indexes notching record highs, thanks to healthy growth prospects for the major economies in North America, Europe and Asia.

Yet the Nikkei is still a long way off its all-time peak of 38,915, touched in December 1989.

Despite the Nikkei hitting a milestone, Wednesday's turnover of 2.37 trillion yen on the Tokyo Stock Exchange's main board was average.

"When the market becomes bullish, normally you would see a surge in trading volume. But we didn't have that today," said Hideyuki Ishiguro, senior strategist at Daiwa Securities.

Leading the gains on Wednesday were defensive shares, such as food companies .IFOOD.T and railway companies .IRAIL.T while cyclical shares underperformed.

Meat processing company NH Foods 2282.T rose 1.6 percent, flour products maker Nisshin Seifun Group 2002.T advanced 1.2 percent, East Japan Railway 9020.T gained 1.6 percent and West Japan Railway 9021.T added 0.9 percent.

Part of Wednesday's buying was driven by speculative buying in the futures to trigger short-squeezing, Ishiguro also said.

Many Japanese investors have sold into a recent rally by buying Nikkei Inverse ETF 1357.T , the price of which is designed to move inversely to the Nikkei and twice as much as the Nikkei, Ishiguro said.

Speculative accounts appeared to be buying the futures to trigger a short-squeeze by the buyers of the leveraged ETFs, he added.

Kobe Steel tumbled for a second day, shedding 36 percent of its value in just two days following its data fabrication scandal. problem is starting to affect companies that have been supplied products from the steelmaker, such as carmakers.

Toyota Motor Corp 7203.T dropped 1.0 percent, Mitsubishi Motors Corp 7211.T shed 1.6 percent and Mazda Motor Corp 7261.T declined 2.0 percent.

(Editing by Simon Cameron-Moore)