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HONG KONG (Reuters) � Asian stocks edged up while the yen rose to a 15-year high on Tuesday ahead of a decisive vote in Japan, leaving unclear whether a rally that lifted global equities to the highest in four months can stay alive.

The yen has for the past few years been a gauge of investors' distaste for risk-taking, rising when the need for stability is high. For a yen PDF, click http://ping.fm/saDu1

Investors though have had mixed signals in September about whether it is the right time to shift out of havens and buy back riskier, higher-yielding assets.

Resilient economic growth out of China and relief that new banking regulations will not unleash a rush to raise equity have gently turned the attention of investors away from uncertainty about the U.S. recovery.

August U.S. retail sales due later could be a reminder though of how much the economy is slowing.

"Although better data in the U.S. and China and the agreement in Basel on new regulations have boosted risk appetite, the moves are already beginning to look exhausted," Mitul Kotecha, global head of foreign exchange strategy at Credit Agricole CIB, said in a note.

"It would be easy to jump on the bandwagon, but after the sharp gains registered over recent days we would suggest taking a cautious stance about jumping into risk trades at current levels."

Japan's ruling party was holding a leadership election on Tuesday that will determine who is Japan's prime minister and could have a big impact on how Tokyo deals with persistent yen strength and deflation.

The U.S. dollar was down 0.4 percent to 83.34 yen after earlier falling as low as 83.23 yen in busy trade.

TOO CLOSE TO CALL

The race between Prime Minister Naoto Kan and party heavyweight Ichiro Ozawa was too close to call, Japanese media surveys showed, ahead of a party conference due to start at 1 a.m. ET. Analysts generally agree an Ozawa victory could cause the yen to weaken, since he is more open to government intervention to stop the currency's 11 percent climb this year.

The U.S. dollar index (.DXY), a measure against six other major currencies, fell 0.2 percent to a one-month low after weakening by the most in two months on Monday, as dealers scooped up yen and Swiss francs.

Japan's Nikkei share average (.N225) led Asia's declining markets, falling 0.2 percent. The strong yen has been a lead weight on Japanese stocks, causing them to underperform other advanced markets.

"While opinion polls have favored Kan, the stock market overwhelmingly would want to see Ozawa win because he is seen to be a more aggressive leader, including his view on currencies," said Kenichi Hirano, operating officer at Tachibana Securities in Tokyo.

The Nikkei has not risen above its 200-day moving average since early May. The U.S. S&P 500 index (.SPX) on the other hand has breached the key long-term indicator three times since May, including overnight. A third failure to stay above the 200-day moving average could trigger a bout of profit-taking.

The MSCI index of Asia Pacific stocks outside Japan was up 0.3 percent (.MIAPJ0000PUS), having fallen for only two days so far in September. The raw materials sector provided the biggest lift, while sectors associated with safety from volatility underperformed, a hopeful sign for equity bulls.

The index is trading at 11.7 times expected earnings a year from now, still way below the five-year average of 13.2 times, suggesting there are still more bargains out there, Thomson Reuters I/B/E/S data showed.

The all-country world stocks index (.MIWD00000PUS) rose for a fifth day to the highest since May 5.

While equity market traders tried to keep a rally going, bond markets could hold a clue on investor sentiment on risk taking.

A precipitous decline in the yield of the 10-year U.S. Treasury note since April paused in September, while investors reloaded on cheap equities and higher-yielding credit. The resumption of declining U.S. yields could be an additional weight on the dollar and a sign of interest in risk taking.

The U.S. 10-year yield was at 2.74 percent, roughly unchanged from where it was late Monday in New York.

Japanese 10-year government bond yields edged up 2 basis points on the day to 1.17 percent, giving way to equity strength.

Oil was steady near a one-month high with the shutdown of the biggest Canada-U.S. pipeline entering a fifth day. U.S. crude for October was trading at $77.25, having earlier touched an intra-day peak at 78.04, the highest since August 11.

(Additional reporting by Aiko Hayashi in Tokyo; Editing by Nick Macfie)

BANGALORE (Reuters) � American International Group Inc (AIG.N) is in talks with U.S. officials to formulate a plan that would speed up the insurer's exit from government ownership, the Wall Street Journal said, citing people familiar with the matter.

The exit plan could be rolled out as early as the first half of 2011 and is designed to repay the U.S. taxpayers in full, the Journal said.

As per the plan, the Treasury department may convert $49 billion in AIG preferred shares it owns into common shares.

This move would increase the government's ownership stake in the insurance company to above 90 percent, from 79.8 percent currently, the Journal said, citing people familiar with the matter.

However, after the conversion, the common shares would be sold off to private investors in a phased manner, a move that would reduce U.S. ownership and potentially earn the government a profit if the shares rise in value, the newspaper said.

"Our objectives remain the same: to repay taxpayers and position AIG over time as a strong, independent company worthy of investor confidence," an AIG spokeswoman told the Journal.

She declined to provide details of the exit plan, the Journal said.

AIG could not immediately be reached for comment by Reuters outside of regular U.S. business hours.

AIG was bailed out by the U.S. government two years ago from near-collapse with a $182.3 billion taxpayer-funded rescue package.

(Reporting by Sakthi Prasad in Bangalore; Editing by Muralikumar Anantharaman)

NEW YORK (Reuters) � Hewlett-Packard Co announced a deal to buy security software firm ArcSight Inc for $1.5 billion in a bid by the world's top personal computer maker to cash in on growing demand for security technology.

The transaction would mark HP's second big acquisition since the departure of CEO Mark Hurd following a sexual harassment probe in August. The deal follows HP's winning of a bidding war against Dell Inc for data storage company 3PAR Inc.

HP said it will pay $43.50 per share in cash for ArcSight, representing a 24 percent premium to its closing price last Friday.

ArcSight shares rose 25 percent to $43.90 in morning trading, with some analysts saying a rival bid was possible. The stock has risen 56 percent since The Wall Street Journal reported on August 26 that ArcSight had put itself up for sale and could be bought by the likes of HP, IBM or Oracle Corp.

"It wouldn't be surprising" Michael Holt, a Morningstar analyst, said about the likelihood of a rival bid. He said ArcSight could fit in a number of "tech titan" portfolios, including Dell.

Cupertino, California-based ArcSight develops software that protects corporate networks from security threats. It serves customers including utilities, government agencies as well as financial services and telecommunications providers.

The deal is the latest in a rash of consolidation in the security technology sector. Last month, Intel Corp agreed to buy McAfee Inc for $7.7 billion. In May, Symantec Corp bought Verisign Inc's payment authentication unit for about $1.3 billion.

HP said on a conference call that buying ArcSight would not materially hurt its earnings per share in fiscal 2011.

Some analysts on the call questioned executives about the high premiums for both ArcSight and 3PAR, both companies beyond HP's core computing business, especially after the departure of Hurd.

HP executives said there was no change to their acquisition strategy and that the company was comfortable with its balance sheet and ability to generate cash.

Hurd left HP after he was accused of falsifying expense reports and concealing a relationship with a female contractor. He has been appointed co-president of Oracle.

HP said it sees the ArcSight deal closing by year-end.

ArcSight's biggest shareholders are Fidelity management which has a stake of almost 15 percent, and Kleiner, Perkins, Caufield & Byers, which has a nearly 11 pct stake, according to Thomson Reuters data.

ArcSight shares were up $8.83 or 25 percent at $43.93 on Nasdaq after the news. Shares in HP were up 7 cents to $38.27 in morning trade on the New York Stock Exchange.

(Additional reporting by Sinead Carew and Jennifer Saba in New York and Sayantani Ghosh in Bangalore)

(Reporting by Liana Baker, editing by Dave Zimmerman)