(Updates at 0200 GMT)

TOKYO, Oct 16 (Reuters) - Japan's Nikkei share average

fell on Wednesday, as chip-related stocks tracked an overnight

drop in U.S. peers following demand concerns, with Tokyo

Electron ( TOELF ) slumping 10%.

The Nikkei was down 1.96% at 39,126.71, as of 0225

GMT, and set to snap a four-day winning streak. The index

crossed the 40,000 level to touch a three-month high in the

previous session.

"The Nikkei's declines reflected the index's sharp gains in

the recent rally," said Seiichi Suzuki, chief equity market

analyst, Tokai Tokyo Intelligence Laboratory.

"After all, the market sentiment is not that strong partly

because of the yen's strength against the dollar from three

months ago."

The yen was at about 149.045 yen against the

dollar in Asian trade, compared with around 160 yen in mid-July

when the Nikkei hit a record peak.

Wall Street's major stock indexes closed lower on Tuesday,

with technology-heavy Nasdaq leading declines after a 1% drop,

as chip stocks came under pressure.

U.S. semiconductor stocks slumped after chip equipment maker

ASML cut its annual sales forecast over weak non-AI

chip demand, while a report said the Joe Biden administration

was considering capping sales of advanced artificial

intelligence processors to some countries.

Chip-making equipment maker Tokyo Electron ( TOELF ) fell

10.14% to track a 5.3% overnight drop in the Philadelphia SE

Semiconductor index.

Technology investor SoftBank Group fell 4.8% and

chip-testing equipment maker Advantest ( ADTTF ) lost 1.3%.

The broader Topix was down 1% at 2,695.01. Insurers

Tokio Marine Holdings ( TKOMF ) and MS&AD Insurance Group ( MSADF )

rose 0.45% and 1.06%, respectively, to become the

biggest support for the Topix.

The insurance sector climbed 0.5% higher.

Topix's growth stock index, which includes

high-flying technology stocks, fell 1.7%. The value shares index

, which tracks stocks with slow growth but higher

dividend payouts, slipped 0.54%.