TOKYO, July 1 (Reuters) - Japan's Nikkei share average

traded higher on Monday but erased most of early gains, after

the Bank of Japan's Tankan survey drove expectations for the

central bank's interest rate hike bets.

The Nikkei was up 0.26% at 39,687.32 by the midday

break, after rising as much as 0.9% earlier in the session,

tracking its futures higher on Friday.

The Nikkei average futures on the Chicago Mercantile

Exchange ended 1% higher on Friday.

The broader Topix rose 0.49% to 2,823.34.

"The outcome of the BOJ's tankan suggested that Japanese

companies will keep raising prices and inflation will continue,"

said Shuutarou Yasuda, a market analyst at Tokai Tokyo

Intelligence Laboratory.

"That lifted expectations that the BOJ will raise rates

again soon, and promoted inventors to sell stocks to lock in

profits."

The BOJ's closely watched "tankan" survey showed on Monday

the headline sentiment index for big manufacturers hit +13 in

June, up from +11 in March and slightly exceeding a median

market forecast for a reading of +12.

The reading, which was the highest since March 2022,

reflected a rebound in automobile sector output and success by

manufacturers to pass on rising raw material costs through price

hikes.

Japan's 10-year government bond yield rose 3

basis points to 1.075%.

Shares of department store operators rose, with J.Front

Retailing ( JFROF ) surging 12.76% to become the top percentage

gainer on the Nikkei and Takashimaya ( TKSHF ) jumping 7.9%,

after they raised their annual profit forecast.

The shipping sector rose 3.52% and was the top

gainer among the Tokyo Stock Exchange's 33 industry sub-indexes.

The insurance sector rose 2.13%.

Medical equipment maker Terumo ( TRUMF ) fell 2.68% to become

the biggest drag for the Nikkei.

Microchip equipment maker Lasertec ( LSRCF ) fell 3.63% to

become the biggest loser on the Nikkei.