TOKYO, April 9 (Reuters) - Japan's Nikkei share average

retreated on Thursday after a sharp rally in the previous

session, as initial euphoria over a two-week fragile ceasefire

in the Middle East gave way to a more cautious market outlook.

Investor sentiment weakened after Israel launched its

heaviest strikes yet on Lebanon on Wednesday, killing hundreds

of people and prompting threats of retaliation from Iran. Tehran

also signalled it would be "unreasonable" to continue

negotiations for a permanent peace deal with the United States.

The Nikkei was down 0.3% at 56,125.02, as of 0045

GMT on Thursday, and on track to snap a fourth-session rally, if

the current trend persists.

The broader Topix was down 0.26% at 3,765.52.

Nikkei 225 Futures on the Chicago Mercantile Exchange

crossed the 57,000 level overnight.

In the previous session, the Nikkei surged 5.4% to its

highest point in more than one month on hopes the Strait of

Hormuz would reopen after U.S. President Donald Trump agreed to

a two-week ceasefire with Iran.

The six-week conflict had brought traffic through the

strait, a chokepoint for about 20% of global oil and liquefied

natural gas (LNG) shipments, close to a standstill, pushing

global energy prices sharply higher.

"Investors have turned calm and started thinking if the

peace talks will really work," said Takamasa Ikeda, senior

portfolio manager at GCI Asset Management.

"Oil prices rose again, and that weighed on the equities

market."

Chipmakers and artificial intelligence-related shares

slipped, with Advantest ( ADTTF ) and SoftBank Group

down 1.59% and 3.95%, respectively.