(Updates with closing prices)

By Kevin Buckland

TOKYO, July 18 (Reuters) - Japan's Nikkei share average

tumbled more than 2% on Thursday, as chip-related stocks joined

a global sell-off in the sector, while a strengthening yen

weighed on automakers and other exporters.

The Nikkei closed 2.36% lower at 40,126.35, after

falling earlier in the day to 40,104.22 - its lowest since July

2. A week earlier, it had jumped to a record high of 42,426.77.

Volatility spiked, hitting the highest level since

May 9 at one point.

Chip-making-equipment giant Tokyo Electron ( TOELF ) was the

biggest drag on the Nikkei, slumping 8.75%. Peer Disco

was the biggest percentage decliner, dropping 8.83%.

The outsized drag from tech was clear in the relative

performance of the broader Topix index, which fell 1.6%.

A sub-index of growth shares slid 2.04%, while a value

share gauge lost 1.18%.

U.S. chip shares sold off sharply overnight, with the

Philadelphia SE Semiconductor Index shedding 6.81% after

a report that the United States was mulling tighter curbs on

exports of advanced semiconductor technology to China.

Remarks from Republican presidential nominee Donald Trump

saying key production hub Taiwan should pay the United States

for its defence then deepened the rout.

Among the Tokyo Stock Exchange's 33 industry groups,

precision machinery was the worst performer, dropping

3.58%, followed by machinery, which lost 3.48%, and

electric machinery, which slid 3.4%.

Disco was due to report its financial results after the

market close, marking the start of the tech earnings season in

Japan.

"From next week, when the earnings season properly kicks

off, we should see some differentiation in stock performance,"

said Maki Sawada, a strategist at Nomura Securities.

Elsewhere, the transport equipment sector

declined 3.17%.

The yen has surged from as low as 161.81 per dollar

on July 10 to as high as 155.375 on Thursday, amid

several rounds of what appears to have been official Japanese

intervention. A stronger yen reduces the value of exporters'

overseas revenues.

Toyota Motor ( TM ) sank 3.47%, Nissan ( NSANF ) dropped

2.29% and Mazda ( MZDAF ) tumbled more than 5%.

(Reporting by Kevin Buckland; Editing by Subhranshu Sahu)