TOKYO, June 3 (Reuters) - Japan's Nikkei share average

rose on Monday, buoyed by a stellar performance on Wall Street

as investors held onto hopes for U.S. interest rate cuts this

year.

The Nikkei was up 0.9% at 38,849.65 by the midday

break, hugging the psychologically significant 39,000-point

mark.

The broader Topix was up 0.83% at 2795.40.

Positive news on Wall Street helped shape sentiment during

Tokyo trading, after the Dow and S&P 500 ended higher overnight

on Friday as month-end repositioning drove a late sharp rally.

Meanwhile, the U.S. personal consumption expenditures (PCE)

price index increased 0.3% last month to match estimates,

keeping alive expectations for the Federal Reserve to cut

interest rates this year.

There was a sense of relief in the market after the PCE

inflation data and a solid performance in U.S. stocks, said

Kenji Abe, an equities analyst at Daiwa Securities.

The market was also adjusting after Japanese government bond

(JGB) yields hit their highest in over a decade last week,

generating concerns about the negative impact on share prices,

he added.

"Investors got shocked, but now they see the level of

yields. ...Real interest rates are still negative, so we have

accommodating market conditions and are likely to see earnings

growth going forward."

The benchmark 10-year JGB yield last hovered

at 1.065%.

The financial sector, which tends to benefit in a higher

interest rate environment, rallied on Monday to help lift

Japanese indexes, with insurance and securities

topping the Tokyo Stock Exchange's 33 industry sector

sub-indexes.

Gains went well beyond financials, however, with 187 of the

Nikkei's 225 constituents advancing against 37 decliners. One

share was untraded.

Among individual stocks, chip-making equipment giant Tokyo

Electron ( TOELF ) climbed 1.6%, while fellow heavyweight Fast

Retailing ( FRCOF ) gained 1.5%.

Household electronics manufacturer Sharp surged to

end the morning session up 4.2% after announcing with KDDI ( KDDIF )

that they would collaborate on building an AI data

centre powered by U.S. firm Nvidia ( NVDA ).