(Updates with closing levels)

By Brigid Riley

TOKYO, March 12 (Reuters) - Japan's Nikkei share average

extended declines on Tuesday as investors made adjustments ahead

of U.S. inflation data and weighed stronger expectations that

the Bank of Japan (BOJ) could make an historic policy shift next

week.

The Nikkei closed 0.1% lower at 38,797.51,

rebounding from broad losses in the morning session as

dip-buying took hold, but was unable to finish in positive

territory.

It was the second consecutive day of declines for the index,

after finishing down 2.2% on Monday.

Tech shares, which have greatly contributed to the Nikkei's

16% gains so far this year, followed their U.S. peers lower as

traders eye U.S. consumer price data, due later on Tuesday.

Chip-making equipment giant Tokyo Electron ( TOELF ) declined

1.7%, while AI-focused startup investor SoftBank Group ( SFTBF )

was down 0.7%.

But losses on the Nikkei were capped due to recovery in some

index heavyweights such as Uniqlo parent company Fast Retailing ( FRCOF )

and chip-testing equipment maker Advantest ( ADTTF ),

which rose 1.4% and 0.9%, respectively.

Exporter shares also picked up somewhat after the Japanese

currency weakened on the BOJ chief's slightly less optimistic

comments on the economy in the Asian afternoon, although

automaker Toyota Motor ( TM ) remained down 0.7%.

The yen has recently gained on expectations that the BOJ

could exit negative interest rates at its policy meeting on

March 18-19.

The central bank's decision to not make purchases of

Japanese exchange-traded funds (ETF) on Monday despite local

shares dropping sharply has further stoked speculation that it

will soon end its ultra-easy monetary policy.

"There's a strong belief in the market that the BOJ will

stop buying ETFs when it exits negative rates," said Maki

Sawada, a strategist at the investment content department of

Nomura Securities.

That could lead to some repositioning this week as traders

await the BOJ's decision, she said.

Banks and insurance firms, which have

seen some of the largest gains year-to-date, slipped 1.9% and

1.6%, as traders made adjustments. Wholesalers lost

1.4%.

The broader Topix finished down 0.4% at 2657.24.