(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 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 ( FRCOF ) dropped 4.22% to

drag the index the most. Staffing agency Recruit Holdings ( RCRRF )

slid 3.32%.

The broader Topix fell 1.02% to 2,756.38, led by

Toyota Motor's ( TM ) 4.29% decline.

Caution over Toyota's ( TM ) December gains outweighed optimism for

the company's outlook supported by a weaker yen, Kamada said.

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

Nippon Steel ( NISTF ) 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.

Chip-related shares rose, tracking Wall Street's strong

finish on Friday, with Advantest ( ADTTF ) rising 1.13% and

Tokyo Electron ( TOELF ) 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.