Japan's Nikkei share average rose on Monday, tracking Wall Street higher as a U.S. inflation report supported expectations for interest rate cuts in the world's largest economy this year.

The Nikkei closed up 1.13% at 38,923.03, hitting the psychologically significant 39,000-point mark earlier in the session.

The broader Topix finished 0.92% higher at 2798.07.

The sentiment was up as the market reacted to the U.S. personal consumption expenditures (PCE) price index released on Friday, which increased 0.3% last month to match estimates, keeping alive expectations for the Federal Reserve to cut interest rates this year.

The Dow and S&P 500 ended higher overnight on Friday, adding to the sense of relief in Tokyo trading hours and supporting widespread gains in Japanese equities.

Of the Nikkei's 225 constituents, 185 advanced against 40 decliners.

The market was also adjusting after Japanese government bond (JGB) yields hit their highest in more than a decade last week, generating concerns about the negative impact on share prices, said Kenji Abe, an equities analyst at Daiwa Securities.

"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 1.06%, after rising as high as 1.1% on Thursday on bets of further policy tightening by the Bank of Japan.

The financial sector, which tends to benefit in a higher interest rate environment, rallied on Monday, with insurance up 3.1% and securities gaining 3.8% to top the Tokyo Stock Exchange's 33 industry sector sub-indexes.

Among individual stocks, Daiwa Securities Group jumped 5.6% and Nomura Holdings rose about 4%.

Chip-making equipment giant Tokyo Electron climbed 1.7%, while fellow heavyweight Fast Retailing gained 1.8%.

A handful of automaker shares fell after Japan's transport ministry said irregularities were found in model applications from five major auto companies. Mazda Motor and Toyota Motor led declines, down 3.3% and 1.8%, respectively.

(Reporting by Brigid Riley; Editing by Janane Venkatraman and Sohini Goswami )