(Updates with closing prices)

By Kevin Buckland

TOKYO, Sept 1 (Reuters) - Japan's Nikkei share average

slumped to a three-week low on Monday as chip-sector stocks

tumbled, taking cues from a technology-led sell-off on Wall

Street on Friday.

The Nikkei fell 1.24% to 42,188.79 as of the close

of trading, and earlier dropped more than 2% to the lowest since

August 8.

The bulk of the Nikkei's 530-index point slide was accounted

for by drops in two heavyweight stocks: chip-testing equipment

maker and Nvidia ( NVDA ) supplier Advantest ( ADTTF ) plunged 7.9%, or

244 points, while artificial intelligence-focused start-up

investor SoftBank Group dropped 4.8%, or 155 points.

The broader Topix, by contrast, declined a more

muted 0.39%.

"This seems to me like an exaggerated reaction to Friday's

New York market, which was basically a rebalancing of portfolios

at month-end by selling all the stocks that outperformed in

August", primarily the big tech names, said Yunosuke Ikeda, head

of macro research at Nomura.

Wall Street's AI darling, Nvidia ( NVDA ), slipped 3.3% on

Friday, declining for a second day after earnings following

Wednesday's closing bell disappointed the market's lofty

expectations.

Nvidia ( NVDA ) shares were also weighed down by a Wall Street

Journal report that China's Alibaba ( BABA ), had

developed a new chip to compete with Nvidia's ( NVDA ) offerings. Alibaba ( BABA )

surged as much as 18.8% on Monday in Hong Kong.

On Friday, the Philadelphia SE Semiconductor Index

dropped more than 3%.

The U.S. markets are closed on Monday for the Labor Day

holiday.

Other chip shares leading the Nikkei lower in the latest

session included Disco, off 7.7%, Socionext ( SOCNF ),

down 6.3%, and Furukawa Electric ( FUWAF ), down 5.5%.

With Advantest ( ADTTF ) and SoftBank Group, those stocks made up the

bottom five performers on the Nikkei.

(Reporting by Kevin Buckland; Editing by Rashmi Aich and

Mrigank Dhaniwala)