TOKYO, June 3 (Reuters) - Japan's Nikkei share average

topped 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 was up 2.2% at 68,203.79 in morning

trade, while the broader Topix gained 1.5% to 3,982.89.

Shares of Kioxia Holdings ( KXHCF ) rose as much as 7.2% to

top the 80,000 yen level for the first time after the

high-flying memory 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 ) and

semiconductor testing equipment maker Advantest ( ADTTF )

together lifted the Nikkei by nearly 840 points, jumping 10.3%

and 4.1%, respectively.

"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."

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

led by a 6.3% jump in nonferrous metals.

Pharmaceuticals was the worst performer, falling

2.2%. Oil prices, meanwhile, rose a little over 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.

The largest percentage gainers in the blue-chip index were

semiconductor equipment maker Screen Holdings ( DINRF ) , up

13.9%, followed by cables and optical fibre producer Fujikura ( FKURF )

gaining 11.1%.

The biggest laggards were software testing provider SHIFT

, down 9.2%, and heavy machinery manufacturer

IHI with a 5.5% fall.

(Reporting by Satoshi Sugiyama; Editing by Sherry Jacob-Phillips

)