(Updates at 0600 GMT)

TOKYO, Aug 26 (Reuters) - Japan's Nikkei share average

declined on Monday after two straight sessions of gains, as

exporters' stocks, including chip-related and auto firms, were

pressured by a stronger yen.

The Nikkei fell 0.66% to close at 38,110.22,

although recovering from a decline of 1.4% earlier in the

session.

"In addition to the yen's strength, there are some factors

that make investors hesitant to make positive bets. In a very

short term, that's Nvidia's ( NVDA ) outlook this week," said Shuutarou

Yasuda, a market analyst at Tokai Tokyo Intelligence Laboratory.

Nvidia's ( NVDA ) blistering run has powered equity markets

throughout 2024, and its earnings and forecast later this week

could be a key inflection point for market sentiment heading

into what is historically a volatile time of the year.

The yen rose to a three-week high against the dollar, as

U.S. Federal Reserve Chair Jerome Powell's dovish shift

contrasted sharply with Bank of Japan chief Kazuo Ueda's

steadfastly hawkish tone.

"Fed rate cuts are positive for stocks but those are already

priced in, while the BOJ is trying to raise rates from now. The

gap in their policies weighs on the stock market," Yasuda said.

Ueda on Friday reaffirmed his resolve to raise rates if

inflation stayed on course to sustainably hit the 2% target,

suggesting recent market volatility would not derail the

long-term rate hike plan.

Heavyweight chip-related shares fell, despite a 2.79% gain

in the U.S. semiconductor index on Friday. Advantest ( ADTTF )

and Tokyo Electron ( TOELF ) slipping 2.51% and 2.43%,

respectively.

Auto fell 2.87% to become the worst performing

sector among the Tokyo Stock Exchange's 33 industry sub-indexes.

The yen and stocks typically move in opposite directions,

since a stronger domestic currency hurts exporters'

competitiveness and also makes stocks more expensive for

foreigners.

The broader Topix fell 0.87% to 2,661.41, with

Toyota Motor ( TM ) declining 3.15% to drag the index the

most.

Nitori Holdings ( NCLTF ) rose 3.95% on expectations that a

stronger yen would lift the outlook for the furniture and

kitchen goods retailer, which relies heavily on imports for

materials for its products.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu and

Varun H K)