Japan's Nikkei slips more than 1% on 1st trading day of 2025 after year-end rally

Updates with closing prices

TOKYO, Jan 6 (Reuters) - Japan's Nikkei share average slipped more than 1% on the first trading day of 2025 on Monday as investors sold stocks after the index's year-end rally, overshadowing gains in chip-related stocks.

The Nikkei .N225 fell 1.47% to 39,307.05 after opening 0.13% higher. The index gained 4.4% in December, its biggest monthly gain since February last year.

"The Nikkei fell after rallying at the end of last year when overseas investors were absent. But the index is at a neutral level at around 39,400," said Shigetoshi Kamada, general manager at the research department at Tachibana Securities.

The Nikkei's losses will be limited for some time with demand from retail investors adding stocks to their tax-free stock investment programme known as NISA, or the Nippon Individual Savings Account, Kamada said.

"Whether the index will go up or down depends on overseas stocks' direction."

Uniqlo-brand owner Fast Retailing 9983.T dropped 4.22% to drag the index the most. Staffing agency Recruit Holdings 6098.T slid 3.32%.

The broader Topix .TOPX fell 1.02% to 2,756.38, led by Toyota Motor's 7203.T 4.29% decline.

Caution over Toyota's December gains outweighed optimism for the company's outlook supported by a weaker yen, Kamada said.

Toyota rose 23% last month, while Topix gained 3.9%.

Nippon Steel 5401.T snapped five straight sessions of gains to fall 0.75% after U.S. President Joe Biden blocked its proposed $14.9 billion acquisition of U.S. Steel X.N.

Chip-related shares rose, tracking Wall Street's strong finish on Friday, with Advantest 6857.T rising 1.13% and Tokyo Electron 8035.T gaining 0.72% to become the biggest support for the Nikkei.

Of the Nikkei's 225 components, 49 stocks rose, 175 fell and one traded flat.

(Reporting by Junko Fujita; Editing by Sumana Nandy)

((junko.fujita@thomsonreuters.com;))