(Updates with closing prices)

By Junko Fujita

TOKYO, June 12 (Reuters) - Japan's Nikkei share average

ended nearly 3% higher on Friday, as investors scooped up stocks

after U.S. President Donald Trump touted a possible peace deal

with Iran.

The Nikkei closed up 2.81% at 66,020.04 after rising

as much as 4.4% earlier in the session.

In a volatile week, the index was down 0.85% for the week,

snapping a three-week winning streak.

The broader Topix gained 1.35% to 3,881.96.

Trump on Thursday said the U.S. and Iran could sign a peace deal

as soon as this weekend that would reopen the Strait of Hormuz

to shipping, but Iran countered that it had not reached a final

decision on an agreement.

Chip-related shares led the Nikkei's gain, with Advantest ( ADTTF )

and Tokyo Electron ( TOELF ) jumping 8.54% and 7.26%,

respectively.

Bank shares rose ahead of the Bank of Japan's policy meeting

next week, where the central bank is set to raise the policy

rate to a 31-year high of 1%.

Mitsubishi UFJ Financial Group ( MUFG ) and Mizuho Financial

Group ( MFG ) rose 0.67% and 2.29%, respectively.

For the year so far, the bank index is up 30% and at

the same level as in mid-February, before the Middle East war

broke out.

It underperforms a 68% gain of the nonferrous sector

, where makers of fibre-optic cables such as Fujikura ( FKURF )

and Furukawa Electric ( FUWAF ), used by AI data

centres, belong.

"This signals the instability of the equity market.

Investors have not yet started rotating their targets toward a

wide variety of stocks," said Takamasa Ikeda, a senior portfolio

manager at GCI Asset Management.

Staffing agency Recruit Holdings ( RCRRF ) and electronic

component maker Murata Manufacturing ( MRAAF ) fell 3.27% and

4.58%, respectively, to weigh on the Nikkei the most.

Camera and audio equipment maker Sony Group ( SONY ) fell

2.29%.