(Recasts paragraph 1, adds analyst comments in paragraphs 3 and

6, updates closing prices)

By Junko Fujita

TOKYO, July 22 (Reuters) - Japan's Nikkei share average

erased early gains on Tuesday to end slightly lower, as

investors returning from a long holiday weekend shifted their

focus to trade talks from the ruling coalition's election

defeat.

The Nikkei closed 0.11% lower at 39,774.92. The

index rose 1.15% earlier in the session to cross the 40,000

level.

"The Nikkei jumped earlier in the session because investors

who shorted stocks immediately bought them back. They initially

thought equities would tank in reaction to the election

outcome," said Shoichi Arisawa, general manager of the

investment research department at IwaiCosmo Securities.

Japan's ruling coalition lost control of the upper house in

an election on Sunday, further weakening Prime Minister Shigeru

Ishiba's grip on power even as he vowed to remain party leader.

The election was closely monitored as Ishiba's party also

lost control of the more powerful lower house in elections last

year and his Liberal Democratic Party was facing calls from

opposition parties for tax cuts.

"But the rally did not last long as the market realised

there are uncertainties, such as the fate of trade talks over

the U.S. tariff," said Arisawa.

The market is expected to remain cautious ahead of an August

1 deadline to reach a deal to avert U.S. President Donald

Trump's tariff of 25% on imports from Japan.

The broader Topix pared its early gains to end 0.06%

higher at 2,836.19.

Chip-related heavyweight Tokyo Electron ( TOELF ) reversed

early gains to end 1.31% lower, becoming the biggest drag on the

Nikkei.

Drugmaker Chugai Pharmaceutical fell 3.18%.

SoftBank Group rose 2.85%, becoming the biggest

support to the Nikkei. Chip-testing equipment maker Advantest ( ADTTF )

climbed 1.43%.

Of the more than 1,600 stocks trading on the Tokyo Stock

Exchange's prime market, 42% advanced, 54% declined, and 3%

traded flat.

(Reporting by Junko Fujita; Editing by Sherry Jacob-Phillips

and Subhranshu Sahu)