(Updates with closing prices)

TOKYO, March 7 (Reuters) - Japan's Nikkei share average

slipped from a record high to end sharply lower on Thursday amid

sell-off of chip-related stocks as the yen gained amid growing

expectations for the Bank of Japan's policy tweak.

The Nikkei ended 1.23% lower - its sharpest daily

drop since Jan. 26 - at 39,598.71, after hitting a record high

of 40,472.11 tracking overnight Wall Street gains.

The broader Topix also reversed course to fall 0.44%

to 2,718,54.

"Investors renewed their expectations that the BOJ would end

its negative rate policy as early as this month," said Seiichi

Suzuki, chief equity market analyst at Tokai Tokyo Intelligence

Laboratory.

Momentum is building for the BOJ to consider ending negative

interest rates as soon as this month, with upcoming annual wage

negotiations likely to yield bumper pay hikes for the second

year in a row.

"Some bullish investors wanted to hold stocks as long as

they can but gains earlier in the session prompted them to lock

in profits. The cue for the sell-off could have been remarks

from a BOJ policy maker," Suzuki said.

BOJ board member Junko Nakagawa said the economy was making

steady progress towards achieving the central bank's 2%

inflation target.

Her comments followed Japan's Jiji Press' report on

Wednesday that some BOJ board members were likely to say that

lifting negative interest rates is reasonable at a policy

meeting this month.

The speculation sent the yen to scale a one-month high

against the dollar.

The two-year Japanese government bond yield

rose to as high as 0.195%, a level not seen since April 2011.

Chip-making equipment maker Tokyo Electron ( TOELF ) fell

3.89% to become the biggest drag on the Nikkei. Chip-testing

equipment maker Advantest ( ADTTF ) lost 4.48%.

Financial shares rose, with Mitsubishi UFJ Financial Group ( MUFG )

and Sumitomo Mitsui Financial Group ( SMFG ) rising

0.53% and 1.65%, respectively.