Japan's Nikkei sags as chip shares dragged down by Nvidia curbs

TOKYO, April 16 (Reuters) - Japan's Nikkei share average was headed for its first decline this week on Wednesday, as chip-sector shares sank after Nvidia NVDA.O said the U.S. government is limiting exports of a key chip to China.

Chip-testing equipment maker Advantest 6857.T - an Nvidia supplier - was the Nikkei's worst performer with a 5% tumble. Chip-making equipment manufacturer Disco 6146.T fell 4%, and silicon producer Sumco 3436.T dropped 3.1%.

The tech-heavy Nikkei .N225 lost 0.4% to 34,136.70 by mid-morning, while the broader Topix .TOPX dipped 0.2%.

Precision equipment makers .IPRCS.T dropped 1.6% as a sector, making them the worst performer among the Tokyo Stock Exchange's 33 industry groupings.

The H20 artificial intelligence chip targeted by the U.S. government is currently Nvidia's most advanced chip for sale in China, and is central to its efforts to stay engaged with China's booming AI industry.

Nvidia has been a key focus of U.S. export controls as officials attempt to keep the most advanced chips from being sold to China. As a result, Nvidia has been designing chips that come as close as possible to U.S. limits.

"The Nvidia news is a massive development for U.S. tech and tech companies everywhere," said Kyle Rodda, senior financial markets analyst at Capital.com.

"It suggests that whatever innovation the company comes up with to get around U.S. restrictions, policymakers are going to eventually clamp down on it," Rodda said.

"That's going to stifle or limit Nvidia sales growth, market share and overall growth potential."

Outside of chip-sector shares, Japanese equities had little direction as investors awaited additional news on U.S. President Donald Trump's tariff policies.

Of the Nikkei's 225 components, 131 fell versus 90 that rose, with four flat.

U.S.-Japan trade talks are due to get under way this week, with Japan's top negotiator, Ryosei Akazawa, arriving in Washington later on Wednesday for a three-day visit.