(Update with closing prices)

By Junko Fujita

TOKYO, July 28 (Reuters) - Japan's Nikkei share average fell

nearly 4% on Tuesday to its lowest close in more than two

months, as chip-related stocks followed their U.S. peers lower

ahead of big tech earnings.

The Nikkei lost 3.95% to 62,364.92, its lowest close

since May 21, while the broader Topix fell 2.52% to

3,963.59.

"The Nikkei fell because AI-related stocks were heavily sold

off, but this has nothing to do with the fundamentals of Japan's

economic outlook," said Koji Toda, senior fund manager at Resona

Asset Management.

"Once investors see a firm outlook of big technology firms

in Japan and the United States later this week, they would buy

back stocks."

Overnight, Nvidia ( NVDA ) fell 4.9% and the Philadelphia

semiconductor index extended its recent selloff, falling

2.2%. The index is down 21% from its record-high close on June

22, but up 63% in 2026.

South Korea's benchmark KOSPI plunged more than 10%

on Tuesday.

The Nikkei's ⁠moves have been heavily influenced by the

tech-heavy KOSPI and the U.S. Philadelphia semiconductor index.

Memory chip maker Kioxia ( KXHCF ) fell 18.33% to a daily

limit low of 44,550. Chip-related Advantest ( ADTTF ) and Tokyo

Electron ( TOELF ) dropped more than 10% each.

The Nikkei has declined more than 14% since hitting a record

high in mid-June as concerns over global technology firms'

aggressive AI spending weighed on local chip-related shares.

Investors had been shifting money to value stocks, such as

banks, which had been rising on prospects of an early Bank of

Japan interest rate hike.

On Tuesday, bank shares fell, with Mitsubishi UFJ Financial

Group ( MUFG ) and Sumitomo Mitsui Financial Group ( SMFG )

losing more than 3% each.

Retailers rose, with Pan Pacific International Holdings ( DQJCF )

and Seven & i Holdings ( SVNDF ) both up more than 3%.

Game maker Nintendo ( NTDOF ) climbed 3.07%.

Of the more than 1,500 stocks trading on the Tokyo Stock

Exchange's prime market, 30% rose, 67% fell and 1% traded flat.