(Updates with cash bond yields, latest prices; adds analyst

comments)

By Kevin Buckland

TOKYO, July 23 (Reuters) - Japanese automaker's shares

led a surge in the Nikkei share average on Wednesday, while

bonds slid after U.S. President Donald Trump said he had reached

a trade deal with Tokyo.

The Nikkei rallied 2.4% to 40,731.86, as of 0121

GMT, with the Tokyo Stock Exchange's transport equipment index

surging 8.4%. Toyota Motor ( TM ) soared 10.9%.

Benchmark 10-year Japanese government bond futures

tumbled as much as 1.01 yen to 137.59 yen, their lowest since

March 28.

The cash 10-year JGB slumped, sending the yield

up 8.5 bps at 1.585%.

Trump on Tuesday said in a post on his Truth Social platform

that the U.S. and Japan had struck a trade deal that includes a

15% tariff that will be levied on U.S. imports from the Asian

country, down from a threatened levy of 25%.

Japanese national broadcaster NHK reported that specific

duties on Japanese auto imports would be 15% instead of 25%,

citing government sources.

"Though details are not yet available, it is commendable

that the 25% baseline tariff was avoided," said Norihiro

Yamaguchi, senior Japan economist at Oxford Economics in Tokyo.

"Lowered uncertainty will be welcomed in the equity market."

Bank shares also gained, sending the TSE's banking index

up 3.7%.

The reduced economic uncertainty helped to clear the path

for the Bank of Japan to resume interest rate hikes, with its

next policy meeting set for Wednesday and Thursday of next week.

"I don't think this alone will lead to a Bank of Japan rate

hike next week, but the possibility of a rate hike between

September and October has increased," said SMBC chief currency

strategist Hirofumi Suzuki.

"This will create pressure to buy yen."

The yen flipped between gains and losses immediately after

Trump's social media post. It was last up about 0.1% to 146.48

per dollar.