(Updates with closing prices)

By Satoshi Sugiyama

TOKYO, June 3 (Reuters) - Japan's Nikkei closed above

68,000 for the first time on Wednesday, just two days after

breaching 67,000, as a rally in AI-related stocks outweighed

concerns over the Middle East.

The Nikkei climbed 2.5% to close at 68,402.13. The

broader Topix earlier surpassed the 4,000 mark for the

first time before closing 1.8% higher at 3,996.2.

Shares of Kioxia Holdings ( KXHCF ) rose 7.2% to top the

80,000-yen level for the first time after the memory-card maker

said it will start paying dividends from fiscal 2027, helped by

strong earnings. It also briefly overtook Toyota Motor ( TM )

as Japan's second-most valuable firm, according to the Nikkei

newspaper.

Chip-making equipment maker Tokyo Electron ( TOELF ) climbed

13.4% to a record-closing high, providing the biggest boost to

the Nikkei by adding 723 points. Shares of semiconductor testing

equipment maker Advantest ( ADTTF ), up 5.1%, lifted the

blue-chip index by 323 points.

"Following the overnight lead from Wall Street and several

additional positive catalysts, semiconductor and AI-related

shares are once again among the biggest gainers today," said

Maki Sawada, an equities strategist at Nomura Securities. "Gains

in AI-linked shares, supported by robust demand expectations,

continue to underpin the rally."

There were 164 advancers in the Nikkei index against 60

decliners.

Semiconductor equipment maker Screen Holdings ( DINRF ) was

the top gainer in the index, surging 17.9% to a record closing

high, while camera and precision optics maker Nikon ( NINOF )

jumped nearly 10%.

On the downside, software testing provider SHIFT

fell 12.2%, leading declines, while film studio and theater

operator Toho slipped 4.1%.

Among the Tokyo Stock Exchange's 33 industry groups, 25

climbed, led by a 5.7% jump in nonferrous metals.

The telecommunications sector was the worst

performer, falling nearly 2%.

Oil prices, meanwhile, rose about 1% after hostilities in

the Middle East escalated, with Iran firing missiles at Kuwait

and Bahrain, while diplomatic talks with the United States

showed little progress.