*

Risk sentiment improves as Iran seeks ceasefire with

Israel

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Bank of Japan holds rates steady, hints at future

tightening

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Chip shares outperform, tracking gains among U.S. peers

(Updates with closing prices)

By Kevin Buckland

TOKYO, June 17 (Reuters) - Japan's Nikkei share average

advanced to a four-month high on Tuesday, tracking overnight

Wall Street gains following signs of a potential de-escalation

of tensions in the Middle East.

Bank shares rose after the Bank of Japan signalled it is

still on track to raise interest rates in the longer term. The

broader equity market, however, largely shrugged off widely

expected decisions to keep borrowing costs steady and slow the

pace of government bond purchase reductions from next April.

The Nikkei closed 0.6% higher at 38,536.74. Earlier

in the day, it reached 38,581.25 for the first time since

February 21. The broader Topix added 0.4%.

All three major U.S. stock indexes advanced strongly on

Monday as market sentiment improved with Iran seeking a

ceasefire with Israel.

The latest flare-up in the Middle East more closely

resembles the Six-Day War of 1967 than other longer-lasting

conflicts in the region, said Tony Sycamore, an analyst at IG.

"The market's relief over this has been augmented by a

cooling in crude oil prices after Israel left key Iranian oil

export infrastructure untouched."

Meanwhile, the BOJ maintained short-term rates at 0.5% by a

unanimous vote at the two-day policy meeting that ended on

Tuesday. It also decided to halve the pace of debt purchase

reductions from next April to help support the bond market.

At the same time, policymakers see consumer prices as still

on track to meet the central bank's target, with BOJ Governor

Kazuo Ueda likely to reiterate a commitment to raising rates at

his press conference.

"Despite referencing domestic political developments, tariff

negotiations and Middle East geopolitical tensions, the BOJ

highlighted a steady rise in inflation, maintaining a possible

pathway for another rate hike this year, potentially in

October," said Shoki Omori, chief desk strategist at Mizuho

Securities.

The Topix banking index ended the day up 0.3%,

reversing morning session losses.

Japanese growth shares still outperformed, though, with a

Topix index of the securities up 0.5%, compared with a

0.2% rise for value shares.

Chip-related stocks were among the Nikkei's top performers.

Disco was the biggest percentage gainer with a 6.3%

surge. Advantest ( ADTTF ) climbed 2.4% and Tokyo Electron ( TOELF )

advanced 2.9%.

Out of the Nikkei's 225 components, 136 rose, 83 fell, and

six ended flat.

($1 = 144.6400 yen)