(Updates with closing prices)

By Junko Fujita

TOKYO, Oct 7 (Reuters) - Japan's Nikkei share average

closed at a record high on Tuesday for a third consecutive

session, as chip-related stocks tracked upbeat U.S. peers,

though the initial momentum eased after traders booked profits

from a recent rally.

The Nikkei held its ground at 47,950.88. Earlier in

the session, the index rose up to 1% to a record high of

48,527.33.

The broader Topix edged 0.06% higher to 3,227.91.

"Investors booked profits at a high of the Nikkei so the

gains were muted, but the momentum is still strong," said

Kazuaki Shimada, chief strategist at IwaiCosmo Securities.

The Nikkei surged 4.8% in the previous session, marking its

biggest single-day gain since early April, after Sanae Takaichi

was all but confirmed to become the country's next premier,

boosting expectations of renewed fiscal stimulus and loose

monetary policy.

"Behind the Takaichi trade, there is strong support from

gains of U.S. artificial intelligence-related firms. So,

AI-related shares such as Advantest ( ADTTF ) and SoftBank Group would

rise regardless of who becomes Japan's prime minister," said

Shimada.

Chip-testing equipment maker Advantest ( ADTTF ) rose 0.64%,

while SoftBank Group, an investor in AI-related firms,

climbed 1.11%, becoming the biggest boost for the Nikkei.

Cable maker Fujikura ( FKURF ), seen as a bellwether for

data centre investments, jumped 5.4% to become the top

percentage gainer in the Nikkei.

Chip-making equipment maker Tokyo Electron ( TOELF )

reversed early gains to close the trade 1.6% lower.

The S&P 500 and the Nasdaq reached record

closing highs in overnight session, as AI-related dealmaking

boosted investor sentiment even as the U.S. government shutdown

extended through its sixth day.

The market lacked the momentum seen in the previous session,

with nearly half of the stocks declining, said Yugo Tsuboi,

chief strategist at Daiwa Securities.

Of more than 1,600 stocks trading on the Tokyo Stock

Exchange's prime market, 46% fell, 49% advanced and 4% traded

flat.