Japan's Nikkei rises more than 2% as chip-related shares rally

TOKYO, Jan 7 (Reuters) - Japan's Nikkei share average rebounded more than 2% on Tuesday, as chip-related shares tracked their U.S. peers higher.

The Nikkei .N225 had risen 2.44% to 40,264.5 by the midday break, after a 1.47% drop in the previous session.

"It looks like the market is betting on potential for large stocks, which are preferred by foreign investors," said Kentaro Hayashi, a senior strategist at Daiwa Securities.

Overnight, the S&P 500 and the Nasdaq Composite rose to more than one-week highs, boosted by a rally in semiconductor stocks and a report that suggested the incoming Trump administration could adopt a less aggressive tariff stance than expected. .N

The broader Topix .TOPX rose 1.31% to 2,792.49. The Topix Core 30 .TOPXC, made up of top 30 firms, climbed 1.96%, while the Topix Small .TOPXS, which consists of stocks excluding the top 500, edged up 0.23%.

Among individual stocks, chip-making equipment maker Tokyo Electron 8035.T surged 10.35% to provide the biggest boost to the Nikkei. Chip-testing equipment maker Advantest 6857.T jumped 7.05%.

Chip-maker Renesas Electronics 6723.T rose 7.62% and chip-making device supplier Disco 6146.T climbed 7.99%.

Banks gained as Japanese government bond yields rose, with Mitsubishi UFJ Financial Group 8306.T and Sumitomo Mitsui Financial Group 8316.T up 3.47% and 2.75%, respectively.

Cosmetics maker Kao 4452.T fell 1.46% to weigh on the Nikkei the most.

Nippon Steel 5401.T slipped 1.46%. The steel maker's chief executive said on Tuesday that the firm would never give up on expanding in the United States.

U.S. President Joe Biden unlawfully blocked Nippon Steel's $14.9 billion bid for U.S. Steel through a sham national security review, the companies alleged in a lawsuit filed on Monday.

Of more than 1,600 shares traded on the Tokyo Stock Exchange's prime market, 53% rose and 42% fell, with 3% trading flat.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu)

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