By Brigid Riley and Kevin Buckland

TOKYO (Reuters) - Japanese stocks rose on Monday as the yen careened to a three-month low after Prime Minister Shigeru Ishiba's coalition lost its parliamentary majority in a drubbing in Sunday's election, raising uncertainty over the path for policy and the economy.

Ishiba's Liberal Democratic Party (LDP), which has ruled Japan for almost all of its post-war history, and junior coalition partner Komeito took 215 seats in the lower house of parliament, short of the 233 needed for a majority. The LDP previously held 247 seats and Komeito held 32.

The outcome may force parties into fractious power-sharing deals to rule, potentially ushering in political instability.

The Nikkei share average ended the day up 1.82% to 38,605.53 after rising by as much as 2.2%. It opened 0.4% lower.

The yen accelerated declines throughout the morning session, slumping as far as 153.885 per dollar for the first time since July 31. It was changing hands about 0.8% lower at 153.505 per dollar as of 0600 GMT.

"The result of the election itself is a negative for the stock market, without a doubt, because of the rise in political uncertainty," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

"However, the rally is partly on the fact that this big risk event is now behind us, so there's a sense of relief. That and the weaker yen."

A weaker currency benefits Japan's heavyweight exporters, as it inflates the value of overseas sales. It also makes Japanese stocks cheaper for foreign investors.

The transport equipment sector was the best performer among the Tokyo Stock Exchange's 33 industry groups, jumping 3.5%. Toyota rallied more than 4% and Nissan climbed 3.5%.

Chip-sector stocks also outperformed, tracking gains among U.S. peers from Friday. Chip-testing equipment maker Advantest soared 4.6%.

"I don't expect the rally will continue," said Norihiro Yamaguchi, senior Japan economist at Oxford Economics.

"The equity market is likely to stay lacklustre till the political uncertainty clears up," he said. "I would expect bond yields to stay high as concern over looser fiscal management will intensify."

Benchmark 10-year Japanese government bond futures fell 0.19 yen to 143.87 yen, reversing an early rise.

The yield curve steepened, with the two-year JGB yield rising 0.5 basis points (bps) to 0.45%, while the 30-year yield gained 5 bps to 2.22%.

The 10-year yield added 2.5 bps to 0.97%.

The election result drew market attention to the policy stance of opposition parties that could become potential partners, many of which favour low interest rates.