TOKYO, July 24 (Reuters) - Japan's Nikkei share average rose on Monday for the first time in three days, with automakers rallying amid a weaker yen, as investors pared bets for a hawkish policy tweak from the nation's central bank this week.

Chip-related shares rebounded from a two-day drop, tracking moves in U.S. peers. Steel companies also gained, after strong earnings from Tokyo Steel saw its stock surge by the daily limit.

The Nikkei ended the day up 1.23% at 32,700.94. Of the index's 225 components, 198 rose, while 25 fell and two were flat.

The broader Topix added 0.84% to 2,281.18.

Transport equipment makers gained 1.65% to be among the top three industry sectors on the Tokyo Stock Exchange.

Japan's currency tumbled as much as 2 yen to nearly 142 per dollar on Friday, after Reuters reported Bank of Japan policymakers are leaning towards keeping yield curve control settings unchanged at its July 27-28 policy meeting.

"There is a high probability of more media reports heading into the BOJ meeting this week that could sway foreign-exchange and other markets, so investors need to be cautious of that," said Maki Sawada, a strategist at Nomura Securities.

The domestic earnings season also gets into high gear at the end of this week, meaning individual share movements are likely to become more pronounced going forward, she added.

Mitsubishi Motors led all Nikkei shares, jumping 5% after reporting favorable financial results during the session.

Iron and steel was the TSE's top performing sector, rallying about 3.5%.

Chip-sector giants Tokyo Electron and Advantest , climbing 2.4% and 2.8% respectively.

Banking was the worst performing sector, slumping 1.3%, dragged down both by the outlook for continued YCC - which has crushed profits from lending - and a decline in American Express on Friday after it missed revenue estimates.

Mitsubishi UFJ Financial Group was the Nikkei's biggest loser, sliding 2%. (Reporting by Kevin Buckland; Editing by Varun H K)