(Recasts headline and paragraph 1, adds comments and details,

updates with closing prices)

By Junko Fujita

TOKYO, March 26 (Reuters) - Japan's Nikkei share average

reversed early gains to end lower on Thursday, as growing

uncertainty over the Middle East conflict prompted investors to

sell stocks.

The Nikkei fell 0.27% to close at 53,603.65, after

rising as much as 0.8% earlier in the session on hopes that

tensions in the region would ease.

The broader Topix ended 0.22% lower at 3,642.8.

"Investors sold stocks to book profits from recent gains.

Also higher oil prices fanned fears of inflation and downward

pressure on the economy," said Shuutarou Yasuda, a market

analyst at Tokai Tokyo Intelligence Laboratory.

Japan's economy remains highly exposed to spikes in crude

oil prices due to its heavy reliance on imported energy. The

closure of the Strait of Hormuz heavily weighs on Japan, which

gets around 90% of its oil shipments via the passage.

The mining and shipping sectors jumped

5.16% and 2.79%, respectively, to become the top-performing

sectors, a sign that investors bet the conflict will prolong,

said a strategist at a domestic firm.

SoftBank Group ended 0.34% higher, after surging as

much as 7% to lead the Nikkei's earlier gains.

Shares of Arm Holdings jumped 20% after the

SoftBank-controlled company forecast that its new data-centre

chip could generate billions of dollars in annual revenue.

Chip-testing equipment maker Advantest ( ADTTF ) dropped

1.96% to drag lower the Nikkei the most.

The index (Nikkei) traded still below the 25-day average of

55,300 after the two-session rally through Wednesday, and that

signals the market remains cautious over the fate of the war,

said Shuji Hosoi, senior strategist at Daiwa Securities.

Toto ( TOTDF ), a manufacturer of high-tech toilet and

bathroom fixtures, fell 5.66% to become the worst percentage

loser in the Nikkei.

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

Exchange's prime market, 62% stocks declined, 34% rose and 3%

traded flat.