(Updates with closing levels)

By Brigid Riley

TOKYO, July 19 (Reuters) - Japan's Nikkei share average

fell on Friday, tracking overnight Wall Street declines,

although a rebound in semiconductor stocks limited losses.

The Nikkei closed down 0.16% at 40,063.79.

The benchmark index fell below the key psychological mark of

40,000 for the first time since July 2 earlier in the session,

after declining more than 2% on Thursday, as chip-related shares

slumped and a stronger yen weighed.

The broader Topix finished 0.27% lower at 2,860.83.

U.S. stocks tumbled on Thursday, as investors continued to

rotate away from high-priced megacap growth stocks and

second-quarter earnings season gathered steam.

The declines dragged on sentiment, with 159 of the Nikkei's

225 constituents declining.

However, investors appeared to rethink the recent sell-off

of chip-related shares, partly in response to

better-than-expected earnings results from TSMC, the world's

largest contract chipmaker, said Hiroshi Namioka, chief

strategist at T&D Asset Management.

Namioka expects the Nikkei to turn higher in the coming

weeks, as Japan's earnings season gets in full swing.

"If TSMC is doing well, then we can assume from a supply

chain perspective that Japan's semiconductor-related firms like

Tokyo Electron ( TOELF ) are, too."

Analysts also anticipate strong revenue results from

export-related companies, which should benefit from a weak yen.

Nikkei heavyweights Tokyo Electron ( TOELF ) and Advantest ( ADTTF )

climbed 2.3% and 1.6%, respectively, to give the

biggest boost to the index.

Renesas Electronics ( RNECF ) jumped 3.6%.

Among the Tokyo Stock Exchange's 33 industry groups,

electric machinery, which includes chip-related

shares, was up 0.3%, among a handful of sectors that gained.

Precision machinery outperformed with a 1.6% rise.

Disco fell 4.6% to become the worst percentage

decliner, after the maker of chip manufacturing devices'

financial results disappointed.