(Updates with closing prices)

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

climbed on Tuesday by nearly 2%, snapping a two-session losing

streak, as chip-related stocks tracked their U.S. peers higher.

The Nikkei rose 1.97% to close at 40,083.3.

Shares of chip-making equipment maker Tokyo Electron ( TOELF )

surged 11.25% to be the biggest boost to the Nikkei

index. Chip-testing equipment maker Advantest ( ADTTF ) rose

4.72%.

"It looks like the market is betting on potential for

large stocks, which are preferred by foreign investors," said

Kentaro Hayashi, a senior strategist at Daiwa Securities.

Overnight, the S&P 500 and the Nasdaq Composite rose to

their highest in more than one week, boosted by a rally in

semiconductor stocks and a report that suggested the incoming

Trump administration could adopt a less-aggressive tariff stance

than expected.

The broader Topix rose 1.1% to 2,786.57. The Topix

Core 30, comprising the top 30 firms, climbed 1.75%,

while the Topix Small, which consists of stocks

excluding the top 500, inched nearly 0.1% higher.

Among other stocks, chipmaker Renesas Electronics ( RNECF )

rose 7% and chip-making device supplier Disco climbed

7.5%.

Banks gained as Japanese government bond yields rose, with

Mitsubishi UFJ Financial Group ( MUFG ) and Sumitomo Mitsui

Financial Group ( SMFG ) up 3.28% and 2.25%, respectively.

Entertainment firm Konami Group ( KNAMF ) fell 1.47% to weigh

on the Nikkei the most.

Nippon Steel ( NISTF ) slipped 1.52%. The steelmaker's chief

executive said on Tuesday that the firm would never give up on

expanding in the United States.

U.S. President Joe Biden unlawfully blocked Nippon Steel's ( NISTF )

$14.9 billion bid for U.S. Steel through a sham national

security review, the companies alleged in a lawsuit filed on

Monday.

Of more than 1,600 shares traded on the Tokyo Stock

Exchange's prime market, 49% rose and 46% declined, with 4%

trading flat.