(Updates with closing prices)

TOKYO, Jan 28 (Reuters) - Japan's Nikkei share average

fell more than 1% on Tuesday as heavyweight chip-related stocks

tracked an overnight drop in the tech-heavy Nasdaq index in the

U.S. but gains in bank shares helped the Topix trim early

losses.

The Nikkei slipped 1.39% to close at 39,016.87.

The broader Topix inched down 0.04% at 2,756.9,

recouping most of its 0.8% loss earlier in the session.

The Nasdaq index posted its biggest one-day drop

since Dec. 18 overnight as a low-cost Chinese artificial

intelligence model prompted a steep sell-off in U.S. chipmakers,

led by AI leader Nvidia ( NVDA ).

U.S. semiconductor chip index dropped 9.2% in its

biggest single-day fall since March 2020.

"Unless this trend of a sell-off of chip shares ends in Wall

Street, Japanese market will continue to see this market move,"

said Yusuke Sakai, a senior trader at T&D Asset Management.

"But the money has not run away from Japan. It is just that

investors sold shares that rallied, meaning chip-related shares,

and bought back bank and other value stocks with those money."

Chip-testing equipment maker Advantest ( ADTTF ), a supplier

to Nvidia ( NVDA ), dropped 11% and chip-making equipment maker Tokyo

Electron ( TOELF ) fell 5.94%.

Bank shares rose on expectations the Bank of Japan would

raise interest rates at a faster pace than the market had

expected.

Mitsubishi UFJ Financial Group ( MUFG ) and Mitsui Sumitomo

Financial Group climted more than 2% each.

The BOJ on Friday raised rates by 25 basis points to 0.5%,

the highest since the 2008 global financial crisis.

The Topix's value share index, which tracks shares

with slower growth but pay higher dividend such as banks, rose

0.29%. The growth share index - tracking faster growing

shares such as technology - fell 0.39%.

Of the Nikkei's 225 components, half of the shares rose.