TOKYO - Japan's Nikkei share average rose on Wednesday as investors weighed news that Japan's prime minister will step down later this year, while they positioned themselves ahead of U.S. inflation data.

The Nikkei finished up 0.6% at 36,442.43 to secure its third consecutive day of gains, while the broader Topix closed 1.1% higher at 2,581.90.

The Nikkei initially rallied more than 1% after local media reported Japanese Prime Minister Fumio Kishida will step down as ruling party leader in September, which he later confirmed in a televised press conference.

Analysts said although the prime minister's decision to step down could add some uncertainty, the impact should be limited.

"His low approval ratings mean a significant negative reaction from equities may be avoided," said Charu Chanana, global market strategist and head of FX strategy at Saxo.

The stock market had also tracked overnight gains in Wall Street after U.S. producer prices data buoyed bets for the Federal Reserve to cut interest rates in September.

However, the gains narrowed as investors locked in profits and attention turned to the closely-watched U.S. consumer prices data due later on Wednesday.

While the inflation report could bolster confidence of a U.S. rate cut, retail sales and labour-related data scheduled for later in the week remain key, Chanana said.

"Markets still remain on edge about a potential U.S. recession and any signs of consumer strain could buoy the yen and bring another pullback in Japanese equities."

Automakers came out as the top performing sector, up 2.8%, led by over 3% gains in Toyota Motor and Honda Motor.

Among individual shares, startup investor SoftBank Group rose 1.7% to give the Nikkei the biggest lift, followed by staffing agency Recruit Holdings, up 2.5%.

Chip-testing equipment maker Advantest gained 1%, although fellow chip-related share Tokyo Electron slid 0.6%.

(Reporting by Brigid Riley; Editing by Subhranshu Sahu, Mrigank Dhaniwala and Varun H K)