TOKYO, Sept 1 (Reuters) - Japan's Nikkei share average

slumped to a three-week low on Monday as chip-sector stocks

tumbled, taking cues from a technology-led sell-off on Wall

Street on Friday.

The Nikkei dropped more than 2% to 41,849.82, as of

the midday trading recess, and earlier dipped to 41,843.96 for

the first time since August 8.

More than half of the Nikkei's 869-index point slide was

accounted for by drops in two heavyweight stocks: chip-testing

equipment maker and Nvidia ( NVDA ) supplier Advantest ( ADTTF ) plunged

9.1%, or 280 points, while artificial intelligence-focused

start-up investor SoftBank Group dropped 6.3%, or 202

points.

The broader Topix, by contrast, declined a more

muted 0.8%.

"This seems to me like an exaggerated reaction to Friday's

New York market, which was basically a rebalancing of portfolios

at month-end by selling all the stocks that outperformed in

August", primarily the big tech names, said Yunosuke Ikeda, head

of macro research at Nomura.

Wall Street's AI darling, Nvidia ( NVDA ), slipped 3.3% on

Friday, declining for a second day after earnings following

Wednesday's closing bell disappointed the market's lofty

expectations.

Nvidia ( NVDA ) shares were also weighed down by a Wall Street

Journal report that China's Alibaba ( BABA ), had

developed a new chip to compete with Nvidia's ( NVDA ) offerings. Alibaba ( BABA )

surged as much as 18.8% on Monday in Hong Kong.

On Friday, the Philadelphia SE Semiconductor Index

dropped more than 3%.

The U.S. markets are closed on Monday for the Labor Day

holiday.

Other chip shares leading the Nikkei lower in the latest

session included Disco, off 8.5%, Socionext ( SOCNF ),

down 7.1%, and Furukawa Electric ( FUWAF ), down 6.7%.

With Advantest ( ADTTF ) and SoftBank Group, those stocks made up the

bottom five performers on the Nikkei.

Of the Nikkei's 225 components, 128 fell, 95 rose, while two

were trading flat.