(Updates with closing prices)

By Kevin Buckland

TOKYO, April 15 (Reuters) - Japan's blue-chip Nikkei

index dropped on Monday as investors sold equities following an

escalation of violence in the Middle East and a sell-off on Wall

Street at the end of last week.

Japanese semiconductor-sector stocks tracked their U.S.

peers lower after a media report said Beijing ordered

China's biggest telecom carriers to phase out the use of foreign

chips.

Domestic earnings produced some outsized losers as well,

with drugmaker Astellas and department store operator

Takashimaya ( TKSHF ) both tumbling.

The Nikkei lost 0.74% to close at 39,232.80, though

that was well off early losses of as steep as 1.78%.

The broader Topix slipped 0.23%.

An already sombre backdrop from losses of more than 1%

across the major Wall Street benchmarks on Friday was made even

more gloomy after Iran launched an unprecedented attack on

Israeli territory over the weekend.

"The risk-off mood is really pushing down on Japanese

equities," said Kazuo Kamitani, an equities strategist at Nomura

Securities.

However, with the Nikkei's 25-day moving average set to

shift upwards from Tuesday as higher prices from before March 8

factor out, the technical picture is set to become more

positive, Kamitani said.

"From tomorrow onwards, Japanese stocks can turn higher," he

said.

Astellas led Nikkei decliners by plunging almost 8%, putting

pharma at the bottom of the Tokyo Stock Exchange's 33

industry groups with a 1.86% slide.

Takashimaya ( TKSHF ) was the Nikkei's second-biggest percentage

decliner, down 6.66%.

Semiconductor-testing machine maker Lasertec ( LSRCF )

led chip-sector losers with a 2.59% slide. Bigger peer Advantest ( ADTTF )

dropped 1.31%.

Meanwhile, shippers and oil companies

rose amid heightened Middle East tensions, adding 2.41% and

1.02%, respectively.

The top-performing sector was utilities, which

was led 3.11% higher by a 5.83% rally in Tokyo Electric Power

Company ( TKECF ) amid new steps toward resuming operations at

its Kashiwazaki-Kariwa nuclear plant, the world's biggest.